Oil Slips as Industry Report Said to Show Surprise Storage Build
Brent crude slipped to near $63.50 a barrel before OPEC and its allies meet this week.
(Bloomberg) -- Oil extended its drop after an industry report was said to show a surprise increase in U.S. crude stockpiles.
Futures edged lower from the settlement in New York after the American Petroleum Institute was said to report U.S. oil inventories rose by 1.82 million barrels last week. That conflicted with the 2.95 million-barrel decline expected in a Bloomberg survey before the Energy Information Administration releases its tally on Wednesday.
Last week’s 2.3 million-barrel withdrawal from the U.S. Strategic Petroleum Reserve probably helped bloat commercial inventories, said Kyle Cooper, director of research at IAF Advisors. “There was a big draw from the SPR, so part of it was that,” Cooper said by phone. “That’s a little on the bearish side.”
Oil declined during Tuesday’s session amid uncertainty about Russia’s stance on the OPEC-led effort to extend supply curbs well into next year. While all OPEC members support prolonging production caps beyond their March expiration, Russia hasn’t yet committed to the proposal, according to people familiar with the matter.
A meeting of the Joint Technical Committee of OPEC and non-OPEC nations recommended the supply accord be extended until the end of 2018, according to a delegate. Iraqi Oil Minister Jabbar Al-Luaibi told reporters in Vienna Tuesday that OPEC is in general agreement to extend its cutbacks and several options are being discussed for the duration, including six months, nine months and one year. Meanwhile, United Arab Emirates Oil Minister Suhail Mohammed Al Mazrouei said that he’s “optimistic” on extending the cuts.
“Everyone’s focus is on OPEC,”’ said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, in a telephone interview. “The takeaway is, it’s not going to be a clean nine-month extension and that’s why you are seeing downward pressure here. We know that the Russian oil companies are pushing back on extending this thing through all of next year.”
Russia’s Stance
While oil surged earlier this month on signals the Organization of Petroleum Exporting Countries and its partners would proceed with an extension, doubts have begun creeping in. Moscow still has concerns that taking measures to elevate crude above $60 a barrel will be a boon to U.S. shale drillers, according to people familiar with the matter.
“The Russian angle is working its way into the conversation,”’ said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York, in a telephone interview. If the extension is for less than nine months, “the market’s not going to be very happy.”
If the outcome of OPEC’s meeting in Vienna on Thursday doesn’t meet expectations, prices could quickly drop further, according to Goldman Sachs Group Inc.
West Texas Intermediate for January delivery traded at $57.73 a barrel at 4:41 p.m. after settling at $57.99 a barrel on the New York Mercantile Exchange, the lowest level since Nov. 21. Total volume traded was about 26 percent below the 100-day average.
Brent for January settlement dipped 23 cents to end the session at $63.61 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.62 to WTI.
U.S. Inventories
The API report was also said to show that crude inventories at the key Cushing, Oklahoma, pipeline hub declined by 3.18 million barrels, the people said. A draw at Cushing of that magnitude would be the largest since September 2009 if government data confirms it.
Gasoline stockpiles were said to have fallen by 1.53 million barrels last week in the API data, while distillate supplies increased by 2.7 million barrels, the people said.
Oil-market news:
- Citigroup Inc. said OPEC may either defer its decision on output cuts to the first quarter of 2018 or agree on an extension shorter than nine months.
- Oil prices should remain range-bound at $50-$60 a barrel over the next two years, but there is upside risk from political tensions and winter weather that could push prices to $80, Societe Generale SA analysts said in a note.
- The oil market will rebalance some time next year, with a potential extension of OPEC’s cuts as only one factor that will impact the rebalancing, International Energy Agency Executive Director Fatih Birol said.
--With assistance from Alex Longley and Ben Sharples
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, Joe Carroll, Stephen Cunningham
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