Oil Caps Longest Losing Streak in Four Months

Crude Oil Gets Left Behind From Risk Off Rally
  • Crude recovery remains ‘fragile’ as supply returns: Goldman
  • U.S. inventories fell 933,000 barrels to 531.5 million: EIA

Oil fell a fifth day, capping the longest run of declines since February, as the return of Canadian output offset a U.S. crude stockpile drop.

Futures dropped 6.3 percent in New York over the last five sessions. The recovery in oil prices remains “fragile” as disrupted supplies return to the market and prolong a global surplus, according to Goldman Sachs Group Inc. Prices briefly moved into positive territory after U.S. Energy Information Administration data showed that crude supplies fell by 933,000 barrels last week.

"The report today was actually bullish but the market’s still trading lower," said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. "It goes to show that there’s a reluctance to buy with prices near $50."

Oil’s 80 percent rally from a 12-year low in February is faltering amid concern Canadian production will quickly rebound after wildfires and as higher prices are seen bolstering drilling. Output in Canada is expected to ramp-up this month and return to normal by mid-July, the International Energy Agency said. 

West Texas Intermediate for July delivery slipped 48 cents, or 1 percent, to settle at $48.01 a barrel on the New York Mercantile Exchange. It’s the lowest close since May 20. Total volume traded was 4 percent above the 100-day average at 2:40 p.m.

Fed Announcement

Brent for August settlement fell 86 cents, or 1.7 percent, to $48.97 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since May 24. Brent ended the session at a 47-cent premium to August WTI.

“We continue to view the recovery in prices and fundamentals as fragile,” analysts at Goldman Sachs including Damien Courvalin said in the bank’s report. "The deficit in the second half of 2016 will remain modest at current prices” and “a return into surplus is likely in the first quarter of 2017.”

Oil pared losses and the dollar extended declines after the Federal Reserve held off on raising interest rates and suggested the pace of future rate increases may be slower than previously predicted. A weaker greenback makes commodities denominated in the currency less attractive as an investment.

"The Fed doesn’t like a mixed economic picture, so they aren’t going to do anything to strengthen the dollar," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. "If money stays cheap, oil goes higher."

Stockpile Decline

Nationwide crude supplies fell to 531.5 million barrels in the week ended June 10, according to the EIA. The American Petroleum Institute reported Tuesday that inventories rose 1.16 million barrels last week. Stockpiles climbed to an 87-year high of 543.4 million barrels in the last week of April, and have since fallen in five of the last six weeks, EIA data show.

"The official data was quite a bit different from the API," said Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments. "People are expecting further declines. Inventories are still high and have to trend lower, otherwise there will be no support for high prices."

Gasoline stockpiles fell 2.63 million barrels to 237 million last week, the lowest since Jan. 1. Supplies of distillate fuel, a category that includes diesel and heating oil, rose 786,000 barrels to 152.2 million.

Production Swoon

U.S. crude production decreased by 29,000 barrels a day to 8.72 million, EIA data show. The number of active oil rigs in the U.S. increased by 3 to 328 last week, the first two-week gain since August, according to Baker Hughes.

"The crude inventory number was more supportive that anticipated," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "The decline in U.S. production added to the supportive nature of the report. Higher prices, the rise in the number of rigs and the previous week’s production gain led to speculation there might be another gain."

Oil-market news:

  • Completion of drilled but uncompleted wells in the U.S. will accelerate at a WTI price of $50 a barrel, while $60 oil will trigger an increase in the rig count, according to a report from Citigroup Inc.
  • The global market will be almost balanced next year as demand continues to rise faster than output, while the current glut is much smaller than previously thought, the IEA said.
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