Crude Futures Settle Nearly 5% Lower; Gains From OPEC-Led Deal Erased

Andrew Cummings
May 6, 2017

There was some hope that the price of oil may continue to rise and there the oil supply business was full of optimism about the months and years ahead, in fact it was only in 2014 that Crude Oil was above $100 a barrel, but those days look long gone and are unlikely to return any time soon. Brent was well below the $50 handle and was trading around $49 per barrel at the time of this writing, while WTI has dropped to $46 per barrel.

This followed data from the US Energy Information Administration last night that showed stores there fell 930,000 barrels in the week to April 28, against views for a drop of 2.3m barrels.

"Adding to concerns about bulging inventories, traders pointed to soaring USA oil output, which is up more than 10% since mid-2016 to 9.3mn bpd, nearly matching output of top producers Russian Federation and Saudi Arabia".

"U.S. production continues to rise largely in response to supply discipline being shown by OPEC and Russia", Tim Evans, an energy analyst at Citi Futures Perspective in NY, said by telephone.

"We've had some pretty sharp price corrections already so it does reduce the risk of length liquidation".

Back on Nymex, June gasoline rose 1.5% to $1.503 a gallon, cutting the weekly down to 2.9%, while June heating oil traded at $1.441 a gallon, up 2%-but ready for a loss of 4.4% on the week.

Shale oil producers in the United States are paying the price for pouring increasing output onto the world market.

Recent U.S. gasoline demand, a closely-watched metric, is down by almost one-quarter of a million barrels per day from previous year. Under the pact, OPEC had agreed to cap output at 32.5 million barrels a day.

Distillate stockpiles, which include diesel and heating oil, fell by 562,000 barrels, versus expectations for a 723,000 barrel-increase, the EIA data showed. Pemex is producing more gasoline and diesel at its six refineries across Mexico, reducing fuel imports and leaving less oil available for export. Out of the past four weeks, two of the inventory reductions had been more pronounced, one in line, and this one lower than expected.

Grisanti expects oil to average between $50 to $55 this summer. On Tuesday the futures had settled at their lowest since November 30, when the Organization of the Petroleum Exporting Countries made a decision to cut oil supply. "It's a mistake now to just focus on USA, production and assume that guarantees we'll have an ongoing abundance of supply". One month's worth of data is not enough.

"Evidence is mounting that the OPEC agreement, and the market's reaction, were much ado about nothing", John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. Will they agree to extend a deal to limit oil production in an effort to shore up prices?

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