Oil Slips From 19-Month High as Ample Supply Offsets OPEC Cuts

Updated on
  • U.S. crude stockpiles increased to record last week: EIA
  • Oil imports to U.S. dropped most since November, exports surge

Oil retreated from the highest close since July 2015 in New York as record U.S. crude inventories offset OPEC production curbs.

Futures dropped 0.8 percent. U.S. government data showed stockpiles rose 564,000 barrels to 518.7 million last week, the highest level in weekly data going back to 1982. Still, it was the smallest gain this year and coincided with a drop in imports. The slowdown in the expansion may signal the output cuts by Organization of Petroleum Exporting Countries are starting to tighten supplies globally.

"It took a while, but there’s a realization that we have all-time, record storage and the market is reacting accordingly," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone.

Analysts from Goldman Sachs Group Inc. to Energy Aspects Ltd. have said U.S. stockpiles were boosted by deliveries purchased before oil producers started cutting output in January. While the supply gain, which has kept prices in a tight range above $50 this year, slowed last week, Citigroup Inc. says the glut OPEC created by boosting production prior to the deal means they will need to prolong their cuts beyond June.

West Texas Intermediate for April delivery fell 46 cents to close at $53.99 a barrel on the New York Mercantile Exchange. Prices rose to $54.45 on Thursday, the highest settlement since July 2, 2015. Total volume traded was about 36 percent below the 100-day average. Front-month futures advanced 1.1 percent this week.

Brent for April settlement dropped 59 cents, or 1 percent, to $55.99 a barrel on the London-based ICE Futures Europe exchange. The contract climbed 0.3 percent this week. The global benchmark crude closed at a $2 premium to WTI.

Imports Tumble

U.S. crude imports fell 14 percent to an average 7.29 million barrels a day for the week ended Feb. 17, according to preliminary EIA data. Oil exports from the world’s biggest economy surged to a record and domestic production rose to 9 million barrels a day last week. American explorers boosted the oil rig count by five to 602 this week, the highest number since October 2015, according to Baker Hughes Inc.

"The rig count continues to go up and the U.S. continues to pump more," Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at U.S. Bank, which oversees $136 billion in assets, said by telephone. "At the same time OPEC has been pretty diligent about pulling barrels."

OPEC and its partners achieved 86 percent of their agreed cuts last month, according to a statement on its website. The group’s Joint Technical Committee decided that producers “are on the right track towards full conformity” with supply cuts.

Oil-market news:

  • While Saudi Arabia has said oil giant Aramco is worth more than $2 trillion, industry executives, analysts and investors told Bloomberg their analysis suggests the company is worth no more than half, and maybe as little as a fifth, of that amount.
  • OPEC pumped at will the past two years to defend its turf against rivals. Its recent about-face has left it contending with additional threats in the world’s biggest oil market.
  • Production at Iraq’s West Qurna 1 field will rise to 600,000 barrels a day by mid-year from 450,000 to 500,000 currently due to the installation of new equipment, according to South Oil Co.

— With assistance by Grant Smith

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