Oil Drops After Failure to Hold $50 Even as Stockpiles Shrink

  • OPEC boosts oil-demand outlook, yet group’s output increases
  • In the U.S., crude stockpiles have dropped six straight weeks

Crude Near $50 After OPEC Boost Demand Outlook

Oil retreated to the lowest level in more than two weeks after a surge above $50 a barrel didn’t last long.

Futures slipped 2 percent in New York as support for the key $50 threshold proved weak. Even though U.S. crude inventories shrunk for a sixth week, the declines are seen by some investors as simply seasonal. While OPEC raised demand forecasts for its crude this year and next, a rise in Libyan production pushed the group’s output in July to the highest this year. 

"What you’re looking at is a nervous market," Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago, said by telephone. “$50 is a major psychological number for this market and it may need to see a little bit more evidence of falling production in the U.S. and strong demand to keep it growing higher."

Oil has lingered near $50 a barrel in New York since the end of last month as investors assessed elevated global supplies and the impact of output cuts by the Organization of Petroleum Exporting Countries and its allies including Russia. Meanwhile, both Saudi Arabia and Iraq agree to maintain balance in global energy markets and ensure coordination in oil policies, according to Saudi Energy Minister Khalid Al-Falih.

“There’s massive confidence in the fundamental justification of a $45-$50 range,” Clayton Rogers, an energy derivative broker at SCS Commodities Corp. in New Jersey, said. “OPEC still has powerful levers to pull to protect the bottom end of the range. Traders are also confident that moves above $50 will be followed by substantial producer hedging.”

West Texas Intermediate for September delivery dropped 97 cents to settle at $48.59 a barrel on the New York Mercantile Exchange, the largest decline in more than a week. Total volume traded was about 77 percent above the 100-day average.

Seasonal Surge

Brent for October settlement fell 80 cents to end the session at $51.90 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $3.15 premium to October WTI, the widest gap since late 2015. That could encourage more U.S. crude exports as WTI becomes more competitive relative to Brent.

As the summer driving season continues, U.S. crude stockpiles slid by 6.45 million barrels to 475.4 million last week, Energy Information Administration data on Wednesday showed. On top of that, nationwide crude production dropped by 7,000 barrels a day to 9.42 million.

“We expect to see fundamental support from U.S.-led stock draws for the next few weeks, but we’re really cautious because we don’t think it’s going to last that long,” Michael Wittner, the head of commodities research at Societe Generale SA in New York, said by telephone. “It’s going to turn seasonally bearish in September and October.”

Oil-market news:

  • OPEC shipments will increase to 24.16 million barrels a day in the four weeks to Aug. 26 versus the period to July 29, tanker-tracker Oil Movements said in weekly report.
  • Analysts and traders are bullish on WTI crude futures, according to a weekly Bloomberg survey.
  • Saudi Arabia is said to tell OPEC it produced 10.01 million barrels a day of oil last month, according to an OPEC delegate.
  • Royal Dutch Shell Plc is aiming to return its Pernis refinery in Rotterdam to full operations by the end of this month, according to a local resident who was briefed on the matter by the company.

— With assistance by Ben Sharples, and Abigail Morris

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