Oil retreated from its highest closing price in three years as some of the gains driven by a plunge in U.S. crude stockpiles melted away.
Futures lost 1.1 percent in New York, trimming this week’s advance to 1.5 percent. Crude stockpiles in the U.S. slid by 7.42 million barrels last week, the biggest decline since August, according to government data Thursday. Oil output rose for the 10th time in 11 weeks, and inventories of gasoline and distillates such as heating fuel also gained.
Oil in New York has reached a level where profits are high enough to encourage a further expansion in drilling, compounding speculation that efforts by the Organization of Petroleum Exporting Countries to boost prices may prove self-defeating. While the group and its allies including Russia are succeeding in draining bloated stockpiles, there are challenges ahead.
As “crude production continues rising, and will likely continue to do so now prices have strengthened, we find it difficult to see how builds will not continue to materialize in the coming weeks,” analysts led by Michael dei-Michei at JBC Energy GmbH in Vienna said. “When looking at total U.S. oil inventories, last week actually saw a small build” once crude and refined fuels are added together, they said.
WTI for February delivery fell 69 cents to $61.32 a barrel on the New York Mercantile Exchange, as of 1:21 p.m. in London. Total volume traded was about 12 percent below the 100-day average. Prices added 38 cents to $62.01 on Thursday, the highest close since December 2014.
Brent for March settlement lost 76 cents to $67.31 a barrel on the London-based ICE Futures Europe exchange after rising 0.3 percent on Thursday. Prices are up 0.7 percent this week. The global benchmark crude traded at a premium of $6.06 to March WTI.
U.S. oil output rose to 9.78 million barrels a day last week, near a record high, according to the Energy Information Administration. Gasoline inventories jumped by 4.81 million barrels and distillates by 8.9 million. Crude stockpiles fell to 424.5 million barrels, the lowest since September 2015.
“There’s been a one-way, very steep and uninterrupted rally off the last minor low in mid-December near $56, so it won’t be surprising to see a pause here,” said Ric Spooner, a Sydney-based analyst at CMC Markets. “Prices are getting into shale oil country and the market may wait for evidence as to whether producers are increasing output or not.”
Supplies at Cushing, Oklahoma, the delivery point for WTI, fell to the lowest since February 2015. While WTI has surged, further gains may waver near $62.50 a barrel, just as they did in May and June of 2015, according to Spooner at CMC Markets. Technical guides are also showing the potential for a retreat with relative strength index indicating futures are likely overbought. CME Group Inc. cut the margin requirement for the WTI front-month contract to $1,950 from $2,100, according to its website.