Oil hovered below $49 a barrel as record U.S. crude inventories and a boost in drilling activity threaten OPEC’s efforts to reduce a global glut.
Futures were little changed in New York after slipping 9.1 percent last week, the biggest weekly loss since November. U.S. crude inventories probably rose by 3 million barrels last week, according to the median estimate in a Bloomberg survey before an Energy Information Administration report on Wednesday. Rigs targeting crude in the U.S. climbed to the highest since September 2015. Kuwait supports extending OPEC’s output deal beyond June, Kuwait’s official news agency Kuna reported, citing Kuwait Oil Minister Issam Almarzooq.
Oil broke below the $50-a-barrel level last week that it had held above since the Organization of Petroleum Exporting Countries and 11 other nations started trimming supply on Jan. 1. OPEC Secretary-General Mohammad Barkindo said that February compliance to the historic deal will be higher than January and shale producers have agreed that oversupply isn’t good for anyone. Yet, U.S. crude stockpiles are at a record-high level and production surged to the highest in more than a year. Rising U.S. output is the “main threat” to the global output deal, according to Russia’s largest producer.
“It’s all about the short-term glut that we have to deal with today, with the potential shortage months down the road,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. “For the market to establish the fact that it has finally hit bottom, we really have to get the price of oil back above $50 a barrel, which is still a tall order at this point.”
West Texas Intermediate for April delivery fell by 4 cents to $48.45 a barrel at 12:46 p.m. on the New York Mercantile Exchange. Total volume traded was about 8 percent above the 100-day average. The contract dropped 79 cents to $48.49 on Friday, capping the biggest weekly decline since November.
Brent for May settlement rose 7 cents to $51.44 a barrel on the London-based ICE Futures Europe exchange. Prices slid 8.1 percent last week. The benchmark traded at a $2.41 premium to May WTI.
U.S. drillers boosted the rig count by eight to 617 last week, according to data Friday from Baker Hughes. The nation’s crude output has climbed to 9.09 million barrels a day, according to data from the Energy Information Administration.
Cushing, Oklahoma supplies increased by 1.3 million barrels last week, according to a forecast compiled by Bloomberg.
“What $50 proved was anything $50 or north of $50 a barrel will lead to expanding rig counts and higher U.S. production,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “If your goal is to stop growth in U.S. production, you’ve got to have a lower price.”
- In Libya, crude production dropped 13 percent as clashes among rival armed groups led to the closure of some of the OPEC nation’s biggest oil-export terminals.
- VelocityShares 3X Long Crude ETN saw a record $194.6 million inflow last week, data shows, while investors poured about $80 million into the U.S. Oil Fund.
- The East coast gasoline market is “close to balance,” Phil Verleger, president of oil-market consultancy PK Verleger, said in emailed research note.