February 1, 2018, by Heesu Lee
The rally that lifted oil prices to the highest level since 2014 is losing momentum as a jump in U.S. production and a rebound in stockpiles reignite concerns over a glut.
Futures are trimming Wednesday’s advance of 0.4 percent after slumping 2.5 percent over the first two sessions this week. U.S. output surged above 10 million barrels a day for the first time since 1970 in November and nationwide stockpiles ended 10 consecutive declines last week. Yesterday’s relatively small gain was spurred by data that showed the first draw in gasoline inventories since early November.
Crude advanced for a fifth month in January, the longest such streak since 2011. The rally was driven by falling U.S. stockpiles and a weaker dollar amid efforts by OPEC and its allies to trim a glut. Still, the gain in prices was seen spurring American drillers to pump more, prompting fears that stockpiles would once again start to build. Additionally, inventory increases were on the horizon due to seasonal refinery maintenance.
“Shrinking U.S. stockpiles had supported crude above $60 a barrel this year, but as we enter the off-season for crude demand, inventories will rebound,” Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone. “OPEC nations wouldn’t want a sudden rise in oil prices because that will only spark U.S. production.”
West Texas Intermediate for March delivery lost 5 cents to $64.68 a barrel on the New York Mercantile Exchange at 4:51 p.m. in Tokyo. The U.S. benchmark crude climbed 23 cents to close at $64.73 on Wednesday. Total volume traded was about 10 percent above the 100-day average. Front-month futures are still down 2 percent this week.
Brent for April settlement was at $68.84 a barrel on the London-based ICE Futures Europe exchange, down 5 cents. The March contract expired Wednesday after rising 3 cents to $69.05. The global benchmark crude traded at a premium of $4.36 to April WTI.
U.S. output climbed to 10.038 million barrels a day in November, the Energy Information Administration reported Wednesday. That’s the highest level since November 1970 in monthly data collected by the agency since 1920.
Nationwide crude stockpiles climbed 6.78 million to 418.4 million barrels last week, according to the EIA. Contributing to the expansion in stored supplies of crude was a 41,000-barrel increase in domestic daily production as well as the biggest tranche of imported oil since August.
U.S. gasoline inventories dropped by 1.98 million barrels last week, according to the EIA, helping ease some concern over lackluster demand. March futures on the Nymex added 0.2 percent to $1.8979 a gallon. The February contract expired Wednesday after settling at $1.9075 a gallon.
BHP Billiton Ltd., seeking to accelerate the sale of its U.S. shale unit, is prepared to offer the assets in as many as seven packages, including three in the prized Permian Basin, according to people with knowledge of the producer’s plans. OPEC likes to trumpet its record-breaking compliance with output cuts. Yet one of its largest members has been opening the taps and doesn’t plan to scale back any time soon.