Oil Futures Slump Anew as Market Doubts Build -- Update
Oil prices fell 3% over the course of a few minutes in midday Asian trading Friday, hitting their lowest level since a key production-cut agreement in November as traders lost faith that those cuts would reduce the glut.
That quick decline followed an overnight drop of 5% in New York, sending prices below $45 a barrel for the first time since the Organization of the Petroleum Exporting Countries agreed in late November to cut output for six months. After nearly eight hours of subsequently steady trading, prices started to slightly ease before falling again shortly after 3 a.m. GMT.
No immediate catalyst for Friday's quick selloff has been identified, but "the selloff means Asian investors are resonating with the bearish sentiment seen overnight in New York," said Gao Jian, an energy analyst at SCI International. He estimated prices could drop another dollar or two before a mild rebound.
In recent trading, the price for light, sweet crude futures for delivery in June was down 3.1% at $44.11 a barrel in the New York Mercantile Exchange's Globex electronic session. July Brent crude on London's ICE Futures exchange fell 2.8% to $47.02.
Both are now down some 10% this week, negating most of the gains made since late last year, when OPEC and Russia agreed to slash their collective output by 1.8 million barrels a day.
Nymex reformulated gasoline blendstock for June--the benchmark gasoline contract--fell 233 points to $1.4579 a gallon, while June diesel traded at $1.3870, 253 points lower. ICE gasoil for May changed hands at $415.25 a metric ton, down $10.75 from Thursday's settlement.
The OPEC-led production cuts haven't yet made a dent in robust global inventories. A decision is due late this month on whether to extend or even increase production cuts.
Analysts had predicted that OPEC cuts would prompt American shale producers to pump more, but the rebounding output has surpassed those expectations. U.S. production has averaged more than nine million barrels a day for each of the past 11 weeks.
After holding the postdeal price gains through February, oil has fallen since then. "OPEC's failure to raise oil prices is fundamentally linked to their failure to bring down petroleum inventories," Bernstein said.
With the production cuts, the cartel aims to reduce global stockpiles to their five-year average, a goal that is only attainable if the cuts continue, industry insiders say. As such, most believe an extension is a foregone conclusion. The pressing question is: For how long, and who is on board?
Investors began selling overnight after Reuters reported OPEC members aren't interested in deepening the current cuts. Moreover, some estimates show that, four months into the deal, OPEC's total production is still above the agreed cap of 32.5 million barrels a day thanks to rising output from Angola and Nigeria, based on an S&P Global Platts survey. OPEC's official production report is due Thursday.
The noncommittal stance of Russia, the world's largest oil producer, is also an irritant. For now, it has apparently delivered on its pledges to cut daily output by 300,000 barrels. But Russia hasn't yet indicated whether it will back an extension.
But not all market watchers are nervous.
Bernstein said investors should be patient because the effects of the cuts will soon materialize. Already, there are signs that stockpiles in developed economies declined in April. Meanwhile, a significant drop in oil exports from OPEC members should also "result in meaningful inventory drawdowns over the coming months," the firm added.
The current rate of cuts is sufficient to result in a shortage of a million barrels a day in the second half of 2017 as seasonal demand to pick up, Citi Futures analyst Tim Evans said.
Lucy Craymer contributed to this article.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
May 05, 2017 02:08 ET (06:08 GMT)