Oil Slips as Gushing Wells Take Shine Off Record U.S. Exports

Updated on
  • American production bounces back by most since 2012: EIA
  • Crude, products exports catapult to all-time high level

OPEC Said to Mull Output Cuts Exit Plan

Oil fell as the biggest surge in U.S. output in half a decade overshadowed record overseas demand for American crude and fuels.

Futures fell 0.6 percent in New York, halting three sessions of gains. Bullish U.S. government data that showed plunging gasoline and diesel stockpiles was tempered by the rise in oil production and a bump up in crude inventories.

“This is likely what’s continuing to weigh on the crude market at present,” Michael Loewen, a commodities strategist at Scotiabank in Toronto. said in reference to the increase in supplies from U.S. oil fields.

Oil has held above $50 a barrel for the past two weeks in New York amid increasing confidence that supply cuts by the Organization of Petroleum Exporting Countries and allies including Russia will be extended beyond March. OPEC is said to be working on an exit strategy in an effort to reassure investors that the group will manage a controlled release of supplies to avoid a new glut when the curbs eventually expire.

West Texas Intermediate for December delivery slipped 29 cents to settle at $52.18 a barrel on the New York Mercantile Exchange. Total volume traded was about 9 percent below the 100-day average.

Brent for December settlement rose 11 cents to end the session at $58.44 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.26 to WTI, the widest in more than four weeks.

The spread is an incentive for U.S. producers and traders to export domestic oil to higher-priced markets and “that might be here to stay a little longer,” Matt Sallee, who helps manage $16 billion in oil-related assets at Tortoise Capital Advisors LLC, said by telephone. “Initially, it was thought to be related to the hurricane, but to me it’s becoming a little more structural.”

Stockpile Levels

Daily exports of American crude, diesel and other petroleum products climbed to a record 7.66 million barrels last week, signaling stronger demand, the Energy Information Administration said in a report Wednesday.

In another positive sign, oil supplies at the key Cushing, Oklahoma, pipeline hub decreased for the first time since August, while gasoline supplies fell by 5.47 million barrels and distillate supplies dropped by 5.25 million barrels.

“The exports are ripping higher,” Loewen said. “At the end of the day, crude oil demand is only one part of the equation. If you have strong products demand, that means refineries are going to buy more crude oil to create those products.”

At the same time, oil output from U.S. wells jumped 13 percent last week to 9.51 million barrels a day, the biggest leap since September 2012. Total U.S. crude stockpiles rose by 856,000 barrels, halting four weeks of declines, the EIA said.

Oil-market news:

  • Iraq’s North Oil Co. is working with the Kurdish Kar Group to resume pumping at two disputed oil fields that halted output after central government troops captured them, according to two people with knowledge of the situation
  • While an extension of cuts at OPEC’s May meeting exceeded market’s expectations, the failure to make deeper inroads was a disappointment that led to weaker oil prices, BNP Paribas SA wrote in a note, flagging the risk of history repeating itself when the cartel reconvenes next month.

— With assistance by Heesu Lee, Ben Sharples, and Grant Smith

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