U.S. Oil Falls From 2015 High on Supply; Brent Gains on Yemen

U.S. benchmark oil futures fell from their highest level of the year on speculation U.S. supplies will expand further. Brent gained on the crisis in Yemen.

West Texas Intermediate still advanced for a sixth week, its longest winning run since February 2014. Brent rose as airstrikes in Yemen led by Saudi Arabia fanned concerned that crude supplies in the region could be disrupted.

Oil prices have rebounded from a six-year low in March on signs that an unprecedented retreat in U.S. drilling rigs is spurring a production slowdown. Inventories are still increasing, with supplies at Cushing, Oklahoma, the delivery point for U.S. futures, reaching 88 percent of storage capacity.

“Inventories continue to build, so it’s hard to get too excited about the upside on WTI,” said Michael Hiley, head of over-the-counter energy trading at LPS Partners Inc. in New York. “Cushing is very close to being full. Production is still very high even though it appears to be coming off a little bit.”

WTI for June delivery slipped 59 cents, or 1 percent, to $57.15 a barrel on the New York Mercantile Exchange. Prices climbed 2.5 percent this week. Total volume was about 9.3 percent above the 100-day average for the time of day.

Shipping Chokepoint

Brent for June settlement added 43 cents to $65.28 on the London-based ICE Futures Europe exchange. It climbed 2.9 percent this week for a third straight gain. The European benchmark crude traded at a $8.13 premium to WTI, the most in a month.

The number of U.S. oil drilling rigs dropped 31 to 703 this week, Baker Hughes Inc. said. That’s the lowest level since October 2010.

Crude stockpiles increased by 5.3 million barrels to 489 million through April 17, the highest level in weekly Energy Information Administration data that started in August 1982. Supplies haven’t been this high since 1930, according to monthly records dating back to 1920.

Inventories at Cushing rose to a record 62.2 million last week. The hub has a working capacity of 70.8 million, according to the EIA.

Daily crude output in the U.S. decreased by 18,000 barrels to 9.37 million barrels last week, according to EIA weekly estimates. Output will average 9.23 million barrels a day this year, the highest since 1972, according to the agency, and then rise to 9.31 million in 2016.

Nineteen of 41 analysts and traders, or 46 percent, were bearish on WTI, a weekly Bloomberg survey showed. Eleven were bullish while the rest were neutral.

Yemen Crisis

Raids by a coalition of mostly Sunni Muslim nations against Shiite rebels marked an escalation of the civil war in Yemen, a country near major oil fields and key shipping routes.

Yemen lies on one side of the Bab el-Mandeb strait, the world’s fourth-busiest oil trading chokepoint, according to the Energy Information Administration. An estimated 4.7 million barrels a day of crude and products were shipped through the waterway last year, up from 3.8 million in 2013, it said in a newsletter.

“The Saudi strikes are adding fuel to the fire for oil prices,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said by e-mail from London. “The market is now concerned about supply over-tightening as U.S. output is starting to fall, but with the recent rally the market is definitely getting ahead of itself.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE