Oil Prices Down as Glut Concerns Weigh

By Jenny W. Hsu and Summer Said Features Dow Jones Newswires

Crude oil prices retreated on Wednesday in Asia trade, weighed by renewed concerns that U.S. production is undercutting the global oil cartel's efforts to put the market back to balance.

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U.S. crude stockpiles likely rose by 882,000 barrels in the week ended May 12, according to industry group American Petroleum Institute. The Wall Street Journal's survey of 13 analysts, however, estimates a decrease of 2.2 million barrels. Official readings from the Energy Information Administration are due later Wednesday.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June traded at $48.20 a barrel at 0259 GMT, down $0.46 in the Globex electronic session. July Brent crude on London's ICE Futures exchange fell $0.44 to $51.21 a barrel.

Investors are being pulled between news that Organization of the Petroleum Exporting Countries producers and non-cartel suppliers are poised to cut more of their production on the one hand, and expectations of accelerating oil output from the U.S. on the other.

On Monday, Saudi Arabia and Russia said the OPEC production cut deal will be extended for another nine months.

But skepticism on the effectiveness of the production cuts returned after the International Energy Agency on Tuesday said commercial oil inventories in developed nations grew by 24.1 million barrels in the first quarter. The agency's preliminary findings also suggest stocks increased again in April.

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Even if the OPEC cuts are extended to the remainder of the year, "stocks at the end of 2017 might not have fallen to the five-year average, suggesting that much work remains to be done in the second half of 2017 to drain them further," said the IEA.

For OPEC to reach its goal of bringing global inventories back to the five-year average, the cartel will need to drain its supplies by 1 million barrels a day over the next 10 months, said Bernstein Research, calling the extension of the 1.8-million barrel per day cuts into 2018 as critical and logical.

Another potential drawback to prolonging the cuts is how the market will cope with the extra supply once production returns to normal levels when the deal ends, said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.

"The risk is that oil markets return to oversupply if members resume production to pre-deal levels quickly," he pointed out.

Nymex June gasoline futures eased by 1% to $1.59 a gallon, diesel lost 0.8% to $1.50 and ICE gasoil retreated 1.2% to $452.50 a metric ton.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

May 16, 2017 23:49 ET (03:49 GMT)