A pumpjack operates above an oil well at night on the outskirts of Williston, North Dakota, U.S. (Photographer: Daniel Acker/Bloomberg)

Crude Drops Amid Growing U.S. Output and Focus on OPEC Talks

(Bloomberg) -- Oil dropped as rising U.S. output overshadowed a surprise decline in crude stockpiles, with traders also focused on whether Saudi Arabia and Russia will boost production.

Futures in New York dropped 1.7 percent after briefly easing losses following an Energy Information Administration report showing a 3.62 million-barrel decline in U.S. crude inventories. That compared with a 450,000-barrel increase forecast in a Bloomberg survey.

U.S. crude output, meanwhile, jumped to a record, pushing prices lower. At the same time, the market remains anxious on what a weekend meeting between international producers might lead to.

“The draw is obviously constructive relative to market estimates, but what continues to drive prices here is really commentary from OPEC and Russia,” said Nick Holmes, an analyst at Tortoise Capital Advisers in Leawood, Kansas, which manages $16 billion in energy-related assets. Weighing on the U.S. benchmark is rising crude production.

Crude Drops Amid Growing U.S. Output and Focus on OPEC Talks

Oil in New York has dropped about 5 percent since Saudi Arabia and Russia announced late last week that the two producers are discussing easing output curbs, with Brent gaining only slightly. Traders are looking for signs that the announcement will bear fruit and whether other producers will join in to ramp up output.

West Texas Intermediate for July delivery fell $1.17 to settle at $67.04 a barrel on the New York Mercantile Exchange. The contract posted a 2.2 percent drop this month.

Brent futures for July settlement, which expires Thursday, added 9 cents to end the session at $77.59 a barrel on the London-based ICE Futures Europe exchange. The more active August contract fell 16 cents to settle at $77.56.

The global benchmark traded at a $10.55 premium to WTI for July.

Transportation Limitations

The widening of the spread is “telling you that the U.S. is growing too fast and they don’t have the capabilities to send it out and that’s impacting local pricing,” said Michael Loewen, a commodities strategist at Scotiabank in Toronto.

The pipeline shortages now hammering Permian shale producers are likely to be a recurring theme in the coming years, Apache Corp.’s chief executive officer is warning. As oil remains trapped in the U.S., it’s likely to further weigh on crude prices.

At the same time, ConocoPhillips, the world’s biggest independent oil explorer, may shift some spending away from the prolific shale play in West Texas and New Mexico, at least until its transport issues get sorted out, Chief Executive Officer Ryan Lance told an investor conference Thursday.

Meanwhile, the EIA reported refinery utilization rose and crude imports dropped 528,000 barrels a day last week, contributing to the overall crude draw. Yet, nationwide output rose for a 14th straight week to 10.8 million barrels a day.

Oil-market news:

  • Gasoline futures fell 1.1 percent to settle at $2.1603 a gallon.
  • OPEC shipments will rise to 24.45 million barrels a day in the four weeks to June 16 versus the period to May 19, tanker-tracker Oil Movements said in its weekly report.
  • WTI crude sentiment mixed, with bearish taking the lead, according to Bloomberg survey of analysts and traders.

©2018 Bloomberg L.P.