Crude dropped after the International Energy Agency said this year’s rally is under threat as OPEC’s biggest members pump at a record pace.
Saudi Arabia, Iraq and the United Arab Emirates each produced record amounts of oil in May, the IEA said. Futures also retreated as the dollar advanced against its major peers for the first time in four days, making raw materials priced in the U.S. currency less attractive as a store of value.
“The IEA reported that OPEC is pumping more oil, leading to excess supply,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “Dollar strength is putting pressure on the market.”
Oil’s recovery from a six-year low has slowed amid speculation that global production will expand as prices rebound, prolonging a surplus. The Organization of Petroleum Exporting Countries last week decided to maintain its quota as it sought to defend market share against higher-cost producers.
West Texas Intermediate oil for July delivery fell 66 cents, or 1.1 percent, to close at $60.77 a barrel on the New York Mercantile Exchange. The contract climbed to $61.43 on Wednesday, the highest settlement since Dec. 9. Prices are up 14 percent this year.
Brent for July settlement decreased 59 cents, or 0.9 percent, to end the session at $65.11 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $4.34 premium to WTI.
The dollar rose as an improvement in U.S. consumer demand supported Federal Reserve plans to increase interest rates this year. The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 of its major peers, increased 0.3 percent.
“There are days when oil ignores what’s happening to the dollar, but this isn’t one of them,” Yawger said. “The correlation seems very strong today.”
Saudi Arabia, the world’s largest crude exporter, boosted output to 10.25 million barrels a day last month, the highest since the IEA began tracking the kingdom’s production in 1984. OPEC’s own data go back further and show the kingdom is pumping the most since August 1981.
Output from OPEC’s 12 members rose by 50,000 barrels a day to 31.33 million barrels a day, the highest level since August 2012, the IEA said.
“Barring unforeseen outages, OPEC is likely to keep pumping at around 31 million barrels a day during the coming months as Middle East producers sustain higher rates to preserve market share,” the report said.
The IEA raised forecasts for non-OPEC supply in 2015 by about 200,000 barrels a day following stronger-than-estimated output from the U.S. during the first quarter. Non-OPEC production will expand by 1 million barrels a day to average 58 million a day this year, according to the report.
“The IEA increased both non-OPEC and OPEC production estimates,” Mike Wittner, head of oil research at Societe Generale SA in New York, said by phone. “They also increased their demand estimate, which I think is the most interesting part of the report. We’ve been getting bits and pieces of the supply story but the demand picture hasn’t been as clear.”
The agency boosted its 2015 estimates for global oil demand by 320,000 barrels a day from last month’s report. Consumption will increase by 1.4 million barrels a day, or 1.5 percent, this year to average 94 million in 2015.
Gasoline futures for June delivery decreased 0.83 cent, or 0.4 percent, to settle at $2.1381 a gallon in New York. It closed at $2.1464 yesterday, the highest settlement since October.
The average price for gasoline at the pump advanced 1.6 cents to $2.761 on Wednesday, the first gain in seven days, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group. Prices are down from $3.644 a year earlier.