Oil Tumbles to Five-Month Low as U.S. Production Builds

By Sarah McFarlane and Jenny W. Hsu Features Dow Jones Newswires

Crude oil futures broke below $50 on Thursday as investors focused on U.S. inventories falling less than expected, deepening skepticism that production cuts from the Organization of the Petroleum Exporting Countries aren't making a big dent in elevated global stockpiles.

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Brent crude, the global oil benchmark, fell 1.9% to $49.83 a barrel on London's ICE Futures exchange, having earlier dipped to $49.69, it's lowest level since Nov. 30. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 2% at $46.85 a barrel.

Government data published on Wednesday showed a modest decline for U.S. crude inventories and another unexpected increase in gasoline supplies as hopes about summer gas demand are frail. Over the last four weeks, sales fell 2.7% from a year earlier.

"It was somewhat disturbing that gasoline inventories went up yet another week, counter seasonally, and of course we saw continued increasing U.S. crude oil production," said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

Meanwhile, U.S. crude exports continue to soar, aggravating the market's supply-and-demand imbalance. S&P Global Platts said U.S. oil has become more price-competitive, with West Texas Intermediate offered at a discount to Dubai crude, the main benchmark for Middle East supply to Asia. Exports in the past month were 38% above outbound shipments in the last eight weeks of 2016, the firm's data show.

"The market is looking for overall stock draws as evidence that the OPEC cuts are indeed driving global rebalancing," said Société Générale. "This week's U.S. figures did not provide that evidence."

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As U.S. producers continue to unleash a steady, and strong, stream of shale oil into the market, it intensifies pressures on OPEC and Russia to continue keeping their output capped to prevent further price erosion. An official decision whether or not to extend curtailments will be announced when the group meets later this month.

"If OPEC comes out with a negative message and no cooperation the market might trade down to $45," Mr. Schieldrop said, adding that the expectation was that OPEC would take action to reassure investors that they aren't going to flood the market with oil.

Oil's decline was in step with other commodities including industrial metals such as copper, which has been hit by concerns over Chinese demand.

Earlier this week, disappointing Chinese manufacturing data raised doubts that the anticipated commodity demand for infrastructure and construction projects may not materialize on the scale that had been expected.

Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- fell 2.1% to $1.50 a gallon. ICE gas oil changed hands at $436.00 a metric ton, down $5.75 from the previous settlement.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

Oil prices fell to a five-month low Thursday, as investors have become increasingly skeptical of OPEC's abilities to ease a global supply glut amid elevated U.S. crude production and inventories.

Light, sweet crude for June delivery fell $1.81, or 3.7%, to $46.01 a barrel on the New York Mercantile Exchange, on track to close at the lowest level since November 29. Brent, the global oil benchmark, fell $1.90, or 3.8%, to $48.89 a barrel.

The recent selloff in oil has erased most of the gains made after the Organization of the Petroleum Exporting Countries agreed to cut production in November. Other non-OPEC producers, including Russia, joined the deal late last year, bringing expected cuts to about 1.8 million barrels a day.

However, growing activity from U.S. shale producers has sparked concerns among investors that the rebalancing of the oil market won't come as quickly, or easily, as many analysts forecast.

"There's just been a real loss of confidence of the effectiveness of the OPEC and non-OPEC deal," said John Kilduff, founding partner of Again Capital. "You're seeing a lot of supply still around the world."

Meanwhile, stocks of crude oil and products in the U.S. have remained at high levels. Data from the U.S. Energy Information Administration on Wednesday showed a modest decline in crude stockpiles and an increase in gasoline supplies.

"It was somewhat disturbing that gasoline inventories went up yet another week, counter seasonally, and of course we saw continued increasing U.S. crude oil production," said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

With a large amount of oil and gasoline in storage, market participants are also worried about weakening demand from U.S. consumers, particularly going into the summer season when demand usually rises. Over the past four weeks, gasoline sales fell 2.7% compared with a year ago, according to EIA data.

Lower-than-expected gross domestic product growth in the first quarter may also be contributing to concerns about demand, said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston.

"It certainly may have reinforced people's negative expectations for U.S. oil demand going forward," Mr. Saucer said. "That just feeds into that negative spiral. This is going to be a rough week."

Concerns over demand led to a broad drop in commodities Thursday, as metal prices also fell on lackluster economic data from China, a major commodities consumer.

As U.S. producers continue to unleash a steady, and strong, stream of shale oil into the market, it intensifies pressures on OPEC and Russia to continue keeping their output capped to prevent further price erosion. An official decision whether to extend curtailments will be announced when the group meets later this month.

Gasoline futures fell 3.2% to $1.4851 a gallon, trading at a three-month low. Diesel futures lost 3.4% to $1.4242 a gallon, its lowest level since November.

Jenny W. Hsu contributed to this article.

Write to Stephanie Yang at stephanie.yang@wsj.com and Sarah McFarlane at sarah.mcfarlane@wsj.com

(END) Dow Jones Newswires

May 04, 2017 12:34 ET (16:34 GMT)