Oil Prices Fall Sharply on Output Concerns

By Timothy Puko and Neanda Salvaterra Features Dow Jones Newswires

Oil prices took some of their biggest losses of the year Tuesday, with concerns about rebounding output from Libya and oversupply in the U.S. pushing prices to new lows.

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Brent crude, the global benchmark, fell to its lowest point since Nov. 29. U.S. oil is at its second-lowest settlement since then, and Tuesday's losses were its third-biggest of any session in 2017.

Most of the losses came in a steep drop late in the afternoon, but spotting its trigger was difficult. Some noted live comments on Saudi television from the country's deputy crown prince, but little of what he said about oil would affect near-term markets. The drop is likely from the same trends that have often weakened oil prices since March: resilient stockpiles and production at a time many expected output cuts to cause a rally, brokers said.

"This is just more people stopping out," said Scott Shelton, broker at ICAP PLC. "There's a general jitteriness about a couple things."

Light, sweet crude for June settled down $1.18, or 2.4%, at $47.66 a barrel on the New York Mercantile Exchange. It is the lowest settlement since March 21. Brent lost $1.06, or 2.1%, to $50.46 a barrel on ICE Futures Europe.

The latest losses are the ninth in 12 sessions, with resilient stockpiles, especially in the U.S., waylaying a widely expected rally. U.S. prices are now down nearly 11% from April's high and have been plumbing new lows for about a week.

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Oil markets have been prone to selloffs this spring largely because U.S. stockpiles haven't fallen sharply as many have expected. That trend is likely continuing according to The Wall Street Journal's weekly survey of 10 analysts and traders. The group expects crude storage levels likely fell by 1.8 million barrels in the week ended Friday but that gasoline stockpiles rose 700,000 barrels and stockpiles of distillates, which include heating oil and diesel, rose by 600,000 barrels.

The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed a 4.2 million-barrel decrease in crude supplies, a 1.9-million-barrel decline in gasoline stocks and a 436,000-barrel decline in distillate inventories, according to a market participant.

There are concerns that a production cut led by the Organization of the Petroleum Exporting Countries may not make a dent in global oil stocks as producers such as Libya that were exempt from the deal are ramping up their output.

Libya's National Oil Company said Monday that production is currently above 760,000 barrels a day. The country's authorities said earlier that production at the Sharara and El Feel fields may soon restart. That is still weighing on the markets Tuesday, analysts said.

OPEC's supply action, which took effect in January, will be reviewed at the end of May. Recent comments from OPEC officials suggest that, four months into the deal, the cuts haven't materially reduced global inventories and the market remains bloated.

"The fundamental picture does not point to strength, it points to weakness," said Gene McGillian, research manager at Tradition Energy. "Until we get signs these guys are going to remove these excess barrels from the markets, signs do not point to $50 barrel."

Deputy Crown Prince Mohammed bin Salman said his country's optimistic economic scenario for oil prices is $55 a barrel and the lowest is $45 a barrel. But he said few other things about current prices or oil markets, speaking more on how the country plans to handle revenue from Saudi Arabian Oil Co. and its initial public offering, targeted for next year.

Adding to the negative market sentiment is rising U.S. output and anemic demand for petroleum products. Gasoline futures in the U.S. hit two-month lows this week. Recent data from the Energy Information Administration showed that over the prior four weeks, gasoline demand was 1.8% lower than a year earlier.

Despite that, refiners barely slowed from a recent breakneck pace, according to the Journal's survey. Its participants estimate that refinery utilization fell just 0.4 percentage point to 93.7% in the week ended Friday.

Traders who move based on momentum have also piled on in recent days, brokers said. In addition to all the concerns about oversupply, the 50-day-moving-average price for June futures recently crossed below the 200-day trend line, which momentum traders consider one of the strongest signs that further losses will follow.

"There's a question on whether there's another leg down coming," said Ric Navy, senior vice president for energy futures at brokerage R.J. O'Brien & Associates LLC.

Gasoline futures lost 1.36 cents, or 0.9%, to $1.5136 a gallon, the 13th losing session in the past 15. It is at its lowest settlement since Feb. 28 and has shed 14% since hitting the high point of the past year on April 10.

Diesel futures lost 1.98 cents, or 1.3%, to $1.468 a gallon, its 12th losing session of the past 13. It is at its lowest settlement since Nov. 29

Write to Timothy Puko at tim.puko@wsj.com and Neanda Salvaterra at neanda.salvaterra@wsj.com

(END) Dow Jones Newswires

May 02, 2017 17:23 ET (21:23 GMT)