Oil Falls From Five-Month High Amid Signs of Growing Crude Glut

Commodities Check: See More Downside for Oil?
  • Kuwait output set to reach record 3.15 million barrels a day
  • U.S. crude supply topped 540 million barrels: Bloomberg Survey

Oil fell from a five-month high in New York amid signs a global glut will be prolonged as Middle East producers boost supplies.

Kuwait plans to expand oil production to more than 3 million barrels a day by June, doubling output from where it stood during last week’s oil-worker strike. Iran has increased output by 1 million barrels a day since sanctions were lifted in January, Shana reported, citing Oil Minister Bijan Namdar Zanganeh. A government report Wednesday is projected to show U.S. crude supplies topped 540 million barrels for the first time since 1929.

Oil has rebounded after falling to a 12-year low amid signs the global surplus will ease as U.S. crude output slips and gasoline demand climbs. U.S. gasoline consumption rose to 9.25 million barrels a day in March, an all-time high for the month, the American Petroleum Institute said April 21.

"The market is trying to balance rising OPEC production with the rise in U.S. gasoline demand," said Phil Flynn, a senior market analyst at Price Futures Group Inc. in Chicago. "Gasoline demand has been very strong, which will eventually tighten the oil market. This process will take some time."

West Texas Intermediate oil for June delivery dropped $1.09, or 2.5 percent, to settle at $42.64 a barrel on the New York Mercantile Exchange. The contract climbed 1.3 percent to $43.73 on Friday, the highest close since Nov. 10.

Market Share

Brent for June settlement declined 63 cents, or 1.4 percent, to $44.48 a barrel on the London-based ICE Futures Europe exchange. The European and African benchmark crude was at a $1.84 premium to WTI.

The Standard & Poor’s 500 Index retreated. The S&P 500 Oil & Gas Exploration and Production Index slipped as much as 2.7 percent after finishing Friday at the highest since Dec. 2.

The June WTI contract is trading between the 50 percent and 61.8 retracement from the high of $54.23 on Aug. 31 and the low of $30.79 touched Jan. 20. The 50 percent retracement is $42.51 and the 61.8 is $45.28.

"We’re down with stocks," said Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania. "The June contract is meandering in a key technical area, between the 50 percent and 62 percent retracement levels from the highs around Labor Day to the January lows. If they can’t break through technical resistance here, the rally will probably fade."

Rebounding Output

Kuwaiti output will climb to 3.15 million barrels a day by June, Haitham Al-Ghais, market research manager at government-owned Kuwait Petroleum Corp., said Monday in an interview in Abu Dhabi. That would be the OPEC member’s highest level ever, according to data compiled by Bloomberg.

Iranian crude production will continue to rise until the country has regained pre-sanctions market share, Zanganeh said, according to oil ministry news website Shana. Sanctions against the nation, strengthened in July 2012, were lifted in January.

Saudi Arabian Oil Co. will complete an expansion of its Shaybah oil field by the end of May, allowing the kingdom to maintain total capacity at 12 million barrels a day, two people with knowledge of the plan said. Capacity of the field will rise to 1 million barrels a day from 750,000 barrels, said the people, who asked not to be identified because the information isn’t public.

U.S. crude inventories probably rose by 1.5 million barrels to 540.1 million in the week ended April 22, according to a Bloomberg survey conducted before an Energy Information Administration report Wednesday. Gasoline stockpiles probably dropped last week, the survey showed.

More oil-market news:

  • Saudi Aramco valuation is seen at about $2 trillion, Saudi prince Mohammed bin Salman said in an interview with Al Arabiya TV.
  • Brent could reverse at the end of April, Morgan Stanley said.
  • “Market sentiment” signals that prices have reached a bottom, Vitol Group senior executive Christopher Bake said at a conference in Abu Dhabi.
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