Oil Falls as Supply Surges at U.S. Hub, OPEC’s Position on Curbs

  • OPEC said to accept natural decline as part of non-member cuts
  • Cushing, Oklahoma, stockpiles rose 3.78 million barrels: EIA

Oil Market Contemplates OPEC, Non-OPEC Production

Oil dropped after a report showed crude supplies at Cushing, Oklahoma, the biggest U.S. storage hub climbed the most since January 2009.

West Texas Intermediate futures decreased 2.3 percent. Stockpiles at Cushing, which is the delivery point for WTI, rose by 3.78 million barrels last week. OPEC will accept natural output declines as part of the 600,000-barrel-a day reduction agreed with non-members, rather than insist they intentionally cut, three officials familiar with the matter said. OPEC and non-OPEC producers are scheduled to meet later this week to discuss output cuts.

Oil surged to a 16-month high Monday after the Organization of Petroleum Exporting Countries agreed last week to trim the group’s output by 1.2 million barrels a day from January to stem a supply glut and buoy prices. OPEC has invited 14 producers from outside the group to a meeting on Saturday to discuss the curbs, Secretary-General Mohammad Barkindo said.

"The crude-buying frenzy of last week has abated," Adam Wise, who helps run a $7 billion oil and natural gas bond and private equity portfolio at John Hancock in Boston, said by telephone. "The market is now digesting the data and attention is shifting to the implementation of the agreement."

WTI for January delivery fell $1.16 to close at $49.77 a barrel on the New York Mercantile Exchange. The contract settled at $51.79 on Monday, the highest close since July 2015. Total volume traded was about 51 percent above the 100-day average at 2:40 p.m.

Brent for February settlement declined 93 cents, or 1.7 percent, to $53 on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.06 premium to February WTI.

Balanced Market

A global cut of 1.8 million barrels a day would be enough to balance the market, United Arab Emirates Energy Minister Suhail Al Mazrouei said on Wednesday in Abu Dhabi. Supply and demand should be balanced by mid-2017, said his Nigerian counterpart, Emmanuel Ibe Kachikwu.

See also: OPEC Ministers See Oil Market Balanced if Other Producers Cut

"The initial euphoria that followed the OPEC deal is wearing off," Matt Sallee, who helps manage $15 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas, said by telephone. "We’re hopeful that prices will continue to grind higher but I wouldn’t be surprised if we consolidate around $50 through the end of the year."

Crude stockpiles at Cushing climbed to 65.3 million barrels in the week ended Dec. 2, the highest since September, according to the Energy Information Administration. Nationwide crude inventories dropped for a third week, falling 2.39 million barrels to 485.8 million. 

Gasoline stockpiles climbed 3.43 million barrels to 229.5 million, the biggest build since January. Supplies of distillate fuel, a category that includes diesel and heating oil, rose 2.5 million barrels to 157 million. January gasoline futures tumbled 1.8 percent to close at $1.5082 a gallon.

Oil-market news:

  • Oil market backwardation is set to kick in as of mid-2017, Francisco Blanch, head of commodity markets research at Bank of America Merrill Lynch, said at the bank’s annual outlook event.
  • The EIA raised its U.S. output forecast for 2017 to 8.78 million barrels a day from 8.73 million projected in November, according to its monthly Short-Term Energy Outlook released Tuesday.
  • Nigeria plans to resume output of its Forcados crude grade in January or February once repairs to a damaged pipeline is complete.
  • Kuwait and Saudi Arabia agreed that any resumption of crude production from shared fields along their border won’t raise their output beyond limits set at the OPEC summit, two officials familiar with the talks said.
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