Oil Falls as Boost in U.S. Stockpiles Stirs Fear of Supply Glut

Oil extended its retreat into a fifth day after Wall Street banks raised the specter of a U.S. recession.

05 Jun 2019, 04:24 AM IST

Oil Falls as Boost in U.S. Stockpiles Stirs Fear of Supply Glut

A sample of crude oil sits in a glass flask during testing. (Photographer: Andrey Rudakov/Bloomberg)

(Bloomberg) -- Oil prices slid as a surprise jump in U.S. crude inventories stirred fears of a supply glut at a time when trade wars are already raising concerns about global demand.

Futures slipped 0.6% in after-market trading in New York. The American Petroleum Institute’s weekly report was said to show a 3.55 million barrel increase in U.S. stockpiles last week, compared with a 2 million decline predicted by analysts in a Bloomberg survey. API also reported a 10 million barrel surge in gasoline and distillate fuels.

The results, if confirmed by official government figures Wednesday, are “crazy bearish" and indicate OPEC needs to do more to cut supplies, said Phil Flynn, senior markets analyst at Price Futures Group, in a note to clients.

Oil had risen earlier in the day on optimism that the cartel and its partners would move to stabilize prices. Vitol Group, the world’s largest oil trader, expects the coalition to extend output curbs in the second half of 2019, while Saudi Energy Minister Khalid Al-Falih said he’s committed to doing whatever it takes to balance markets.

West Texas Intermediate crude prices have fallen almost 20% -- about $13 a barrel -- from a peak in late April, moving to the brink of a bear market. The drop occurred as trade relations between Washington and Beijing soured and the White House announced tariffs on Mexican goods.

WTI for July delivery fell 30 cents to $52.95 at 5:15 p.m. on the New York Mercantile Exchange. A settlement at that price on Wednesday would mean the contract has lost more than 20%, putting it in a technical bear market.

Brent for August settlement was up 13 cents to $61.41 a barrel on London’s ICE Futures Europe exchange. The global benchmark crude was trading at a premium of $8.38 to WTI for the same month.

The market could be supported to the upside in the near term with the Organization of Petroleum Exporting Countries expected to meet in the coming weeks. That will come as summer driving season kicks into high gear, helping clear U.S. inventories, a crucial marker for investors looking for rebalancing markets.

UBS analysts said that crude is forecast to rise towards $75 over the next three months due to the market being undersupplied while Societe Generale pinned its Brent oil price forecast to average $72.50 a barrel in the second half of the year.

"It’s pretty clear that demand concerns still have the market at its grip," said Gene McGillian, manager of market research at Tradition Energy. "But, maybe some of these demand fears may have extended itself. Refinery utilization jumped back above 90 percent and WTI should pick up again."

Saudi Arabia’s Al-Falih said he’s confident the OPEC coalition “will do what is needed to sustain market stability beyond June.” Recent oil price volatility is “unwarranted,” he said in an interview with the state-run Saudi Press Agency.

The kingdom boosted production last month by the most this year as output from fellow OPEC member Iran plunged to the lowest since 1990 due to U.S. sanctions, according to a Bloomberg survey of officials, analysts and ship-tracking data. The figures indicate that Saudi Arabia has been willing to replace the lost Iranian barrels, setting the stage for a contentious meeting when the cartel and its partners gather in the coming weeks.

Other oil-market news:
Canadian heavy oil in Alberta surged the most since December after wildfires forced a second producer in the region to shut in some operations. Saudi Aramco may have raised Asian prices for its flagship grade to the highest relative to benchmarks in more than five years, but the region’s refiners actually have reason to be relieved. A Norwegian oil-workers union reached a wage agreement with employers, avoiding a strike that would have cut the country’s crude and gas production by about 11%. America’s largest oil hub in Cushing, Oklahoma, is growing even as producers and traders look to move surging West Texas production to the coast for export.

Other oil-market news:

Canadian heavy oil in Alberta surged the most since December after wildfires forced a second producer in the region to shut in some operations.
Saudi Aramco may have raised Asian prices for its flagship grade to the highest relative to benchmarks in more than five years, but the region’s refiners actually have reason to be relieved.
A Norwegian oil-workers union reached a wage agreement with employers, avoiding a strike that would have cut the country’s crude and gas production by about 11%.
America’s largest oil hub in Cushing, Oklahoma, is growing even as producers and traders look to move surging West Texas production to the coast for export.

--With assistance from James Thornhill, Tsuyoshi Inajima and Grant Smith.

To contact the reporters on this story: Catherine Ngai in New York at cngai16@bloomberg.net;Robert Tuttle in Calgary at rtuttle@bloomberg.net;Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, ;Reg Gale at rgale5@bloomberg.net, Catherine Traywick