Oil Falls as U.S. Supply Gain Seen, Iran to Abstain From Freeze

How Fast Can U.S. Oil Production Ramp Up?
  • Crude supplies probably rose 3.1 million barrels, survey shows
  • Decline eased as Yellen says caution justified iraising rates

Oil dropped a fourth day before a report that’s forecast to show increasing U.S. crude stockpiles have kept inventories at the highest level in more than eight decades.

Futures fell 2.8 percent in New York. Supplies probably rose 3.1 million barrels last week, according to a Bloomberg survey before Energy Information Administration data is released Wednesday. Iran will attend talks with oil producers next month without joining their proposal to freeze output, a person familiar with the nation’s policy said. The decline eased after Federal Reserve Chair Janet Yellen said it’s appropriate to “proceed cautiously” in raising interest rates.

"The longs are getting chased out," said Gary Cunningham, head of market research at Tradition Energy in Stamford, Connecticut. "Global production is still rising and U.S. inventories probably climbed last week to the highest in more than 80 years. We just can’t maintain oil at $40."

Oil tumbled to a 12-year low last month before rebounding on speculation the global surplus will ease as U.S. output declines. Saudi Arabia, Russia, Qatar and Venezuela agreed last month they would cap production at January levels if other producers followed suit to tackle the oversupply. They’ll meet again with other countries in Doha on April 17.

West Texas Intermediate for May delivery dropped $1.11 to close at $38.28 a barrel on the New York Mercantile Exchange. It was the lowest settlement since March 15. Total volume traded was 22 percent below the 100-day average at 4:40 p.m. 

Losses eased after the settlement when the American Petroleum Institute was said to report U.S. crude supplies rose 2.64 million barrels last week. WTI traded at $38.52 at 4:40 p.m.

Brent Drops

Brent for May settlement dropped $1.13, or 2.8 percent, to $39.14 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at an 86-cent premium to WTI.

The dollar fell and equities rebounded on Yellen’s speech to the Economic Club of New York. Fed officials left their benchmark lending rate target unchanged this month at 0.25 percent to 0.5 percent while revising down their median estimate for the number of rate increases that will be warranted this year to two from four projected in December. A weaker dollar bolsters the appeal of commodities priced in the currency.

Iranian Oil Minister Bijan Namdar Zanganeh will attend the producer meeting in Doha, according to a person familiar with policy who asked not to be identified. The nation won’t join other producers in freezing supply because it plans to regain market share after the lifting of sanctions, the person said. Strife-torn Libya is the only OPEC member not scheduled to attend the talks.

Ample Supply

"We’re only putting a 15 percent probability of something coming out of the meeting," Bruno Stanziale, director of global energy and natural resources at Eurasia Group, said on Bloomberg Television. If there’s an agreement "it will be a freeze,” he said. “A freeze at January output levels doesn’t do much to balance the market."

U.S. crude inventories increased to 532.5 million barrels in the week ended March 18, the most since 1930, according to EIA data. Gasoline stockpiles probably dropped by 2.5 million barrels last week, according to the median estimate in the Bloomberg survey.

"The noises coming out ahead of the producer meeting aren’t cause for optimism," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "We’re also expecting another big inventory build."

Speculator Bets

Money managers boosted net-long positions in WTI by 15 percent to 235,830 contracts in the week ending March 22, the highest since the week ending June 16, according to the U.S. Commodity Futures Trading Commission. ICE Brent net-longs also rose.

Commodities are at risk of steep declines as recent gains aren’t grounded in fundamentals, according to a report from Barclays Plc. Oil could fall back to the low $30s, analyst Kevin Norrish said in a note entitled “Buffalo Jump.” The risk for raw materials is that investors seek to liquidate bets on gains quickly and in unison, with potentially highly negative consequences, Norrish wrote.

Other news:

  • Saudi Arabia and Kuwait have agreed to restart their shared Khafji oil field, state news agency Kuna reports, citing comments from Kuwait’s acting oil minister, Anas al-Saleh. during a parliamentary session.
  • Crude at $45 to $50 a barrel is enough to encourage India’s exploration without squeezing fuel consumers, Oil Minister Dharmendra Pradhan said in an interview Monday.
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