Oil Pares Fall After API Said to Report U.S. Crude Supply Drop

  • API said to report American supplies declined 884,000 barrels
  • OPEC needs to extend output cuts beyond six months: Total CEO

Hans Redeker Sees Oil Production Driving U.S. Dollar

Oil pared declines after an industry report was said to show that U.S. crude inventories shrank.

Stockpiles fell 884,000 barrels last week according to an American Petroleum Institute report Wednesday, people familiar with the data said. That contrasted with analysts surveyed by Bloomberg who said supplies probably rose by 3.25 million barrels ahead of Energy Information Administration data Thursday. OPEC must prolong output curbs beyond six months to have a significant impact on bloated world stockpiles, said Total SA Chief Executive Officer Patrick Pouyanne.

A surge in U.S. crude stockpiles to the highest level in more than three decades has kept oil futures in a tight range above $50 a barrel this year, offsetting supply cuts by OPEC and 11 other nations. It’s too early to say whether the production agreement could be extended beyond its initial six-month term, OPEC Secretary General Mohammad Barkindo said.

"The fundamentals actually do matter sometimes," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "The focus is returning to the reality that fundamentally we’re oversupplied."

West Texas Intermediate for April delivery dropped 74 cents to close at $53.59 a barrel on the New York Mercantile Exchange. Total volume traded was 17 percent below the 100-day average. The March contract expired Tuesday after advancing 1.2 percent to $54.06. Futures traded at $53.88 a barrel at 4:40 p.m. after the API report.

Next Move

Brent for April settlement fell 82 cents, or 1.5 percent, to $55.84 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.25 premium to WTI.

"We’re stuck in a range," Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone. "There’s a massive overhang in supply, which just doesn’t justify WTI at over $55."

The pace of the decline in global oil stockpiles, which the Organization of Petroleum Exporting Countries wants to see fall back in line with the five-year average, will determine the group’s next move, Barkindo said. Representatives of member countries are meeting in Vienna Wednesday to discuss compliance with their Nov. 30 supply accord.

For a Gadfly commentary about OPEC’s plans to curb supply glut, click here.

“If they want really to have an impact on the market, which means to have the inventories going down because inventories are quite high, it will have to be extended beyond May,” Pouyanne said Tuesday in a Bloomberg TV interview in New York. “I’m convinced that they will do it.”

The CEO of the French oil and natural gas company said he’s “not fully convinced” that tough times for the industry are over. Factors including rising U.S. shale oil production and increasing output from Libya may continue to have a negative impact on prices, Pouyanne said.

"If OPEC wants to get oil trading in a $60-to-$70 band they will have to continue with the quota, extending it for another six months," Cavan Yie, senior equity analyst at Manulife Asset Management Ltd. in Toronto, said by telephone.

Oil-market news:

  • Rosneft PJSC is expanding its footprint in the Middle East by striking new oil deals with Iraq’s Kurdish region and Libya. The company doubled quarterly profit after acquiring Russian oil producer Bashneft PJSC in a state asset sale.
  • Oil industry cost cutting has reached “the bone,” creating the risk of a price spike in two to three years, Qatar’s Energy Minister Mohammed Al Sada said at IP Week conference in London.
  • ConocoPhillips said proved reserves of oil and natural gas tumbled 21 percent to a 15-year low as weak energy prices made some oil-sands assets in western Canada unprofitable.
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