Oil Drops in New York and London as Bulls Charge for the Exits

Updated on
  • Libya working to reopen pipeline linking Sharara to Zawiya
  • OPEC, non-OPEC committee is said to see July compliance at 94%

Ebele Kemery, head of energy investing at JPMorgan, discusses the outlook for oil and impact from OPEC cuts. She spoke to Mark Barton and Vonnie Quinn on 'Bloomberg Markets.' (Source: Bloomberg)

Oil slipped the most in a week in New York and London as traders betting on higher prices were seen closing out positions after Friday’s rally.

Futures tumbled more than 2 percent in both markets, with Brent crude sliding from near a three-month high on Friday. Libya is working to reopen a pipeline linking the Sharara oil field to the Zawiya export terminal after loadings were halted. Meanwhile, a committee of OPEC and allies was said to see slightly lower compliance to their output-reduction deal in July.

“We may have gotten to that point where folks are starting to realize that it’s overdone here a little bit,” Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by telephone. “The speculative position was really long in the Brent barrel and to a certain degree, you are seeing some of that length get out here.”

Oil in New York has lingered below $50 a barrel as investors weighed supply cuts by the Organization of Petroleum Exporting Countries and allies against rising output from U.S. shale fields, as well as Libya and Nigeria -- cartel members that are exempt from production limits. While the U.S. oil rig count dropped last week, American output has continued to expand, climbing to the highest level since July 2015.  

The Joint Technical Committee of OPEC and non-OPEC nations meeting in Vienna on Monday is said to see July compliance to the production-cuts deal at 94 percent, two people with knowledge of the meeting said. That compares with 98 percent in June, according to OPEC’s website. But OPEC is on track to curb output by the most in five months in August, according to tanker tracker Petro-Logistics SA.

West Texas Intermediate for September delivery, which expires Tuesday, fell $1.14 to settle at $47.37 a barrel on the New York Mercantile Exchange. Total volume traded was about 22 percent above the 100-day average. Prices advanced $1.42, or 3 percent, to $48.51 on Friday. October WTI dropped $1.13 to settle at $47.53 a barrel.

“Somebody is taking some profits,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. “We are in the summer doldrums and every move sees a counter-move.”

See also: Brent Oil Steals the Show as Hedge Funds Leave U.S. Crude Aside

Brent for October settlement declined $1.06 to end the session at $51.66 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $4.13 to October WTI, the widest since 2015.

Hedge funds had boosted Brent net-long positions to the highest since mid April in the week ended August 15, weekly ICE Futures Europe data on futures and options show.

U.S. crude stockpiles have slipped for seven straight weeks and the nationwide oil rig count declined by five to 763 last week, the second decrease this month. However, the number of active rigs in fields is still near the highest since April 2015 and output from major shale plays is set to climb to a record next month.

“The fact that U.S. inventories have come down so much is definitely a good sign, suggesting that the global market is coming back into balance, but we certainly don’t see the death of shale at $50,” Lynch said. “That’s becoming increasingly clear.”

Oil-market news:

  • Royal Dutch Shell Plc confirmed a fire occurred at its Pernis refinery, yet the incident isn’t expected to have a significant impact on efforts to resume operations after a blaze in July led to the halt of most units.
  • Cushing, Oklahoma crude stockpiles increased by 300,000 barrels in the week ended Aug. 18, according to a forecast compiled by Bloomberg.
  • The recent widening in the WTI-Brent spread “is limiting the ability of U.S. shale producers to hedge future production,” JPMorgan Chase & Co. analyst David Martin wrote in a report. 

— With assistance by Ben Sharples, and Grant Smith

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