Oil Caps Weekly Drop as Persistent Glut Stymies Price Rallyby
Gasoline falls to seven-year low amid record U.S. stockpiles
U.S. crude supply tops 500 million barrels, most since 1930
Oil capped a weekly gain as growing U.S. crude stockpiles signaled a persisting global glut that’s proving a hurdle for any sustained rally.
Futures fell 2.6 percent Friday in New York as dollar gained after a U.S. jobs report showed wage growth that exceeded estimates, bolstering the case for the Federal Reserve to raise interest rates. U.S. supplies rose above 500 million barrels last week, the highest level since 1930, government data show. Venezuelan Oil Minister Eulogio Del Pino is due to travel to Saudi Arabia, continuing his tour of producers in a bid to increase cooperation.
"The inventory report this week was very bearish," said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. "There’s been a lot of chatter about an agreement between OPEC and non-OPEC producers agreeing to trim production. It seems mostly to be people saying what they wish would happen."
While crude rallied 14 percent in the final two weeks of January, it’s still down about 16 percent this year amid brimming U.S. crude stockpiles and concerns about Iran’s effort to boost exports after the removal of sanctions. The slump in prices has slashed earnings from Royal Dutch Shell Plc to Chevron Corp., while Exxon Mobil Corp. has reduced its drilling budget to a 10-year low.
West Texas Intermediate for March delivery decreased 83 cents to close at $30.89 a barrel on the New York Mercantile Exchange. Futures slipped 8.1 percent this week. Total volume traded was 37 percent above the 100-day average.
Brent for April settlement decreased 40 cents to $34.06 a barrel on the London-based ICE Futures Europe exchange. Prices dropped 2 percent this week. The European benchmark crude closed at a $1.34 premium to April WTI.
WTI briefly rebounded after a report showed drillers idled rigs for a seventh week. The number of rigs drilling for oil fell by 31 to 467, the fewest in more than five years, Baker Hughes Inc. data show.
The discount for front-month WTI against that for delivery a month later widened to the most in 10 months. The March contract close was $1.83 a barrel lower than that for April. The spread between monthly oil-futures contracts are often seen as a reliable gauge of market conditions, and a discount on the earliest months -- known as contango -- typically signals that supplies exceed demand.
U.S. crude stockpiles expanded by 7.8 million barrels to 502.7 million last week, keeping supplies more than 130 million barrels above the five-year seasonal average, according to EIA data. Inventories at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, rose by 747,000 barrels to 64.2 million. Gasoline supplies climbed 5.94 million barrels to 254.4 million, the highest in weekly record going back to 1990.
March gasoline futures dropped 3.5 percent to 99.27 cents a gallon, the lowest close since December 2008. Diesel for March delivery declined 2 percent to settle at $1.059.
Venezuela’s Del Pino, sent by President Nicolas Maduro to press for coordinated action among producers, visited Russia, Iran and Qatar earlier this week. Six OPEC member states and two non-members are open to meeting, according to Venezuela. Such a gathering would be “pointless” without Saudi Arabia, which has so far withheld its support, Commerzbank AG says.
“Absent any surprise on Sunday when Del Pino meets” with Saudi Arabian Oil Minister Ali al-Naimi, “I see prices remaining vulnerable to the downside, as the oil market is still oversupplied,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “We do not expect a coordinated production cut.”
Only 0.1 percent of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. Canada, the U.S. and the North Sea have been affected the most by closures related to low prices, according to Wood Mackenzie.