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Oil Extends Loss as Rising U.S. Inventories Counter Supply Risks


May 2, 2019, by Heesu Lee and Grant Smith
(Bloomberg)

Oil declined for a second day, trading near $63 a barrel in New York, as a massive surge in U.S. crude stockpiles allayed worries about supply disruptions around the world.

West Texas Intermediate futures fell as much as 1.2 percent. U.S. government data showed that crude inventories soared by 9.93 million barrels last week, more than four times the amount initially anticipated by analysts, as production hit a new record. That’s easing concerns that tougher American sanctions on Iran — which take effect today — along with a political uprising in Venezuela and military clashes in Libya may strain supplies elsewhere.

Oil climbed to a five-month high last week as the U.S. moved to tighten sanctions on Iran, ending a series of waivers that allowed some of the country’s customers to continue purchases. Prices have since slipped amid signs that, despite the Iranian crisis and threats brewing in other producing countries, global markets remain sufficiently supplied.

“The overall crude balances have been sloppy of late,” said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd. in London.

WTI crude for June delivery declined as much as 76 cents to $62.84 a barrel on the New York Mercantile Exchange, and traded for $62.89 as of 10:35 a.m. London time. The contract closed down 31 cents at $63.60 on Wednesday.

Brent for July settlement fell 1.2 percent to $71.31 a barrel on the London-based ICE Futures Europe Exchange. The global benchmark crude was at a premium of $8.36 to WTI for the same month.

The immediate risk to Venezuelan output appears to have receded, as an attempted uprising against President Nicolas Maduro by opposition leader Juan Guaido stalled. Despite support for Guaido from the U.S., which accuses Maduro of rigging elections, the president remains in power and retains the support of the armed forces.

Maduro’s Prospects

However, Venezuelan production may yet fall near zero by the end of the year as the U.S. intensifies measures against Maduro’s regime, RBC Capital Markets predicts. It’s “quite conceivable” that Maduro will manage to hang on with help from Moscow, or that another pro-military candidate will assume power in the near term, preventing a recovery in the oil industry, the bank said in a note.

American crude stockpiles jumped to 471 million barrels last week, the highest since 2017, according to the Energy Information Administration. Analysts surveyed by Bloomberg had forecast an increase of 1.75 million barrels. U.S. production rose to 12.3 million barrels a day.

“When the U.S. crude-oil warehouses bulge to their highest levels since September 2017, while production continues to set new high-water marks, warning signals should be flashing red,” said Stephen Innes, head of trading at SPI Asset Management. Still, the weakness is likely to be short-lived as the focus shifts back to supply dangers.

Other oil-market news: OPEC’s crude production was basically steady in April, rising by 25,000 barrels a day from March to 30.3 million, according to a Bloomberg survey of officials, analysts and ship-tracking data. Russia pumped more crude last month than agreed under the OPEC+ deal, lagging behind Energy Minister Alexander Novak’s pledge to comply with the pact. Eastern European nations are working on an unprecedented operation to clean up Russian crude contaminated with organic chloride, with Energy Aspects estimating 30 million barrels could have been affected.



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