Oil Holds Steady in Asia Trade, But Outlook Dogged By Glut
Crude-oil futures held steady in Asia Thursday after plunging deeper into bear territory overnight, with concerns lingering over strong shale output growth in the U.S.
On Wednesday, U.S. oil prices dropped more than 2% to the lowest in 10 months. Even a decline in U.S. crude and gasoline stockpile last week, usually a bullish factor, wasn't able to reverse the bearish sentiment.
What spooked traders and analysts was the rising production from the U.S. despite falling prices. Data show U.S. shale producers churning out 9.35 million barrels last week, almost 8% higher than the same period last year. While production growth rates showed signs of petering out, the data reaffirmed market fears that U.S. producers have become more efficient to weather low prices.
"The lack of a supply side response to lower prices from U.S. shale producers kicked support from under oil markets," said Michael McCarthy, an analyst at CMC Markets.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in August was largely unchanged at $42.54 a barrel at 0351 GMT in the Globex electronic session. August Brent crude on London's ICE Futures exchange was flat at $44.81 a barrel.
While the Organization of the Petroleum Exporting Countries and its allies have pared back output since January, the void created by the cuts have been filled by the "relentless drilling in the U.S. and more output in Libya," said ANZ Research.
Energy investors will be monitoring the weekly U.S. oil rig count -- due Friday -- to gauge the future production rate there. ING Commodities expects the impact from Tropical Storm Cindy in the Gulf of Mexico, which has already shuttered some oil rigs and platforms, will likely push crude inventories lower next week.
Meanwhile, investors who favor going long on oil are pinning their hopes on stronger demand, especially from China, to chip away the glut and lift prices.
China's continued efforts to build up its strategic petroleum reserve and the rapid growth in car ownership pave the way for more crude imports, said Ole Hansen, head of commodity strategy at Saxo Bank.
Saudi Arabia's crude consumption also usually climbs during the third quarter and the annual U.S. summer driving season should stoke demand, he said.
"Overall, the lack of investment in oil projects in the past two years should result in production rising not fast enough to meet the demand," he added, tipping oil prices to see a steady improvement by 2020.
Nymex reformulated gasoline blendstock for fell 0.3% at $1.41 a gallon, while July diesel stood pat at $1.36. July ICE gasoil slid 1.7% to $406.25 a metric ton.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
June 22, 2017 00:41 ET (04:41 GMT)