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Oil Dips as U.S. Output Gains Signal No End to a Persistent Glut

Bloomberg logoBloomberg 6 days ago Jessica Summers
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(Bloomberg) -- Oil declined as the International Energy Agency cast doubts on the prospect of reducing a price-killing global glut, even as a report showed a bigger-than-expected drop in U.S. crude inventories.

Futures fell 1.4 percent in New York, erasing some losses during the session. The IEA said crude inventories may remain bloated next year, capping prices. Even if OPEC and other major oil suppliers prolong production cuts, surging output from U.S. shale fields and elsewhere will frustrate those efforts, the Paris-based agency said. The Energy Information Administration’s weekly tally showed domestic stockpiles slid for a third straight week.

The IEA pronouncement “spooked the market a bit,” Joseph Bozoyan, a portfolio manager at Manulife Asset Management LLC in Boston, said by telephone. “Investors will kind of look to see evidence of continued crude draw-downs before they get really bullish.”

Oil climbed the first three days of this week on speculation that output curbs by the Organization of Petroleum Exporting Countries, Russia and other suppliers were helping to erode elevated inventories that triggered the worst market collapse in a generation. OPEC expects its efforts to clear the surplus to succeed by the end of the third quarter of next year, said people familiar with the group’s internal forecasts.

Yet, the IEA forecast indicates that if the producers prolong the same level of supply cuts, they won’t deplete inventories. Global oil demand will increase next year, yet most of this growth can be satisfied by rising production from the U.S., set to grow by 1.1 million barrels a day, the agency said.

“In terms of the glut, it’s a factor of how fast shale can ramp up,” Brent Belote, founder of Cayler Capital LLC, said by telephone. Investors are looking at the amount of drilled-but-uncompleted wells and “it’s a big worry. I think you can rally, but rallies will be capped for the next nine months to a year.”

HG Research Independent Research Consultant Hans Goetti discusses the price and production of oil.

West Texas Intermediate for November delivery dropped 70 cents to settle at $50.60 a barrel on the New York Mercantile Exchange. Total volume traded was about 7 percent below the 100-day average.

See also: Shrinking Europe Oil Glut Gets Even Smaller After U.S. Hurricane

Brent for December settlement declined 69 cents to end the session at $56.25 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.32 to December WTI.

U.S. crude stockpiles decreased by 2.75 million barrels last week, the EIA said on Thursday, exceeding the 2.4-million median estimate of 10 analysts in a Bloomberg survey forecast. Oil supplies at the key Cushing, Oklahoma, pipeline hub increased by 1.32 million barrels to 63.8 million, the highest level since May. Gasoline supplies rose by 2.49 million barrels, the largest build since early August, the data showed.

“Are the inventories worldwide going down? Yes. But, they are still well above what we need to have. We’re just not in bullish territory,” James Williams, president of London, Arkansas-based energy researcher WTRG Economics, said by telephone.

Oil-market news:

  • Brent crude may reach $70-$80 a barrel in five years on underinvestment, S&P Global Platts’ oil analyst Gary Ross said in a press briefing in New York.
  • Compliance with pledged output cuts by the 10 non-OPEC nations that are participating in the agreement was “largely steady” at about 125 percent in September because of maintenance in Russia and Azerbaijan, the IEA said in its monthly Oil Market Report.
  • OPEC shipments will fall to 23.59 million barrels a day in the four weeks to Oct. 28 versus the period to Sept. 30, tanker-tracker Oil Movements said in a weekly report.

--With assistance from Ben Sharples and Grant Smith

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Jim Efstathiou Jr., Joe Carroll

©2017 Bloomberg L.P.

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