Oil Slides to Lowest in a Month as U.S. Drillers Boost Output
Oil in New York headed for a second weekly loss as U.S. output surged.
(Bloomberg) -- Oil dropped to the lowest level in more than a month amid surging U.S. output and signs that OPEC and Russia may ease production limits.
Futures in New York lost 3.1 percent this week, while the global benchmark traded in London ended the week 0.5 percent higher. Unprecedented U.S. production and transportation bottlenecks at the biggest American oil field are weighing on West Texas Intermediate crude. Meanwhile, Saudi Arabia and Russia are indicating they may push more supplies onto global markets.
“When you look at the production we’ve had in the U.S., it continues to ramp up and you end up having some capacity constraints with the pipelines,” said Mark Watkins, who helps oversee $151 billion at U.S. Bank Wealth Management. “Overseas, as people are wanting our cheaper oil, we’ve go to get it to port cities to ship that off and there’s not a quick fix for this.”
Saudi Arabia and Russia said last week that they are considering raising production, yet there are questions as to whether other nations will be on board with the proposal. Russia’s largest oil company, Rosneft PJSC, is testing its capacity to bring back production it cut under the OPEC-led accord, Renaissance Capital said.
WTI for July settlement slid $1.23 to close at $65.81 a barrel on the New York Mercantile Exchange.
Brent for August dropped 77 cents to end the session at $76.79 a barrel on the London-based ICE Futures Europe exchange. The global benchmark is at a $11.02 premium to WTI for the same month.
In the U.S., crude production jumped to another record high, according to Energy Information Administration data released on Thursday. The oil rig count in the U.S. also increased this week and activity levels in the Permian Basin of West Texas and New Mexico continue to rise, according to a Rystad Energy report Thursday.
“With so much production in the Permian and it’s obvious we don’t have enough pipeline capacity, it’s no surprise you are seeing that divergence between Brent and WTI,” said Joseph Bozoyan, a portfolio manager at Manulife Asset Management LLC in Boston. “There is not a lot of new pipeline capacity coming online until next year, so it could be something that persists at least through this year.”
Valero Energy Corp.’s Memphis refinery in Tennessee plans to shut its larger crude unit in July, according to people familiar with operations. The shutdown could lead to a build-up of crude at the key Cushing, Oklahoma, storage hub.
The spread between front-month and second-month WTI contracts narrowed to 4 cents Friday, from 13 cents on Thursday. The gap, an indication of a tight market and strong demand known as backwardation, shrank from 38 cents at the start of February.
Other oil-market news:
- Gasoline futures dipped 0.8 percent to settle at $2.1434 a gallon.
- Russian Energy Minister Alexander Novak was scheduled to meet with President Vladimir Putin on Friday to discuss gasoline prices in Russia that have surged amid stronger crude prices, two people with knowledge of matter said
- Money managers decreased bullish ICE Brent crude oil bets by 49,638 net-long positions to 451,996, the lowest level since September 2017, weekly ICE Futures Europe data on futures and options show.
--With assistance from Tsuyoshi Inajima and Alex Longley.
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, Carlos Caminada, Joe Carroll
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