Oil Reverses Gains as Rising Output Outweighs Stockpile Declines

  • Crude inventories fell by 6.43 million barrels last week: EIA
  • Libyan output advances to highest level since October 2014

Stephen Schork, president at Schork Group, examines the factors pushing down oil prices, OPEC agreeing to extend production cuts, and the current and future level of demand in the oil market. He speaks on 'Bloomberg Daybreak: Americas.' (Source: Bloomberg)

A decrease in crude stockpiles that spurred an early oil rebound wasn’t enough to counter broader market concerns about U.S. production that continues to rise.

Futures fell after gaining as much as 1.7 percent in New York. While U.S. inventories declined by 6.43 million barrels last week, production jumped by 22,000 barrels a day to 9.34 million, the most since August 2015, the Energy Information Administration reported on Thursday. At the same time, output from Libya, exempt from OPEC’s deal to cut supply, rose to the highest since October 2014 as production from its biggest field increased.

“The U.S. output is a bearish factor for sure, maybe the bearish factor,” said Clayton Rogers, an energy derivative broker at SCS Commodities Corp. in Jersey City, N.J.

West Texas Intermediate for July delivery rose 4 cents to settle at $48.32 a barrel on the New York Mercantile Exchange. The contract lost $1.34, or 2.7 percent, to close at $48.32 on Wednesday, the lowest level since May 12. Prices fell 2.1 percent last month.

Oil slid below $50 a barrel last week after the agreement by the Organization of Petroleum Exporting Countries and its allies to prolong supply cuts for nine months disappointed some investors hoping for more. While U.S. stockpiles have fallen for 8 straight weeks, American production and drilling continues to climb.

The trading range between $45-$55 is "the path of least resistance," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, in a telephone interview. "You stay in that range until you get some kind of clear and convincing evidence" to break out higher or lower.

Brent for August settlement fell 13 cents to $50.63 a barrel on the London-based ICE Futures Europe exchange. The July contract expired Wednesday after dropping $1.53, or 3 percent, to $50.31. The global benchmark crude traded at a premium of $2.06 to August WTI.

See also: OPEC and Russia outline vision for permanent oil alliance

While traders remain bearish, Bob Dudley, chief executive officer of BP Plc, said he believes the OPEC extension has helped stabilize the market and is preventing further price declines. Much of the industry can continue to cut costs to withstand lower prices, he said in a Bloomberg TV interview in St. Petersburg, Russia on Thursday.

Oil-market news:

  • Libyan production increased to 827,000 barrels a day after a boost in output from the Sharara field, according to Mustafa Sanalla, head of the state-run National Oil Corp.
  • U.S. crude imports from OPEC members rose to 3.36 million barrels a day in March, up from 3.18 million a day in February, according to the EIA’s Petroleum Supply Monthly report.
  • Russia’s deal with OPEC has bolstered state coffers by putting a floor under crude prices, but it’s also had one unintended consequence: depressing output in the nation’s West Siberian oil heartlands.
  • OPEC should learn from the U.S. Federal Reserve and do more to explain its long-term oil-output policies instead of just focusing on short-term goals, according to Goldman Sachs Group Inc.
    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE