Oil Prices Fall as Concerns Over U.S. Production Mount

Oil prices fell to a one-month low Thursday amid increasing concerns that attempts to curb supply by major producers may not be sufficient to clear a global surplus.

Light, sweet crude for June delivery settled down 65 cents, or 1.3%, to $48.97, closing at the lowest level since March 28 and down seven of the past nine sessions. Brent, the global benchmark, fell for the second day in a row and settled down 38 cents, or 0.7%, to $51.44 a barrel.

Prices have come under pressure in recent weeks as a buildup of oil products has signaled ample supply in the U.S. and raised questions over steady demand. While data from the U.S. Energy Information Administration on Wednesday showed crude inventories fell 3.6 million barrels, last week, gasoline and diesel stockpiles rose unexpectedly.

The concerns over a flood of gasoline have kept oil trading below $50 a barrel even as some in the market expect the Organization of the Petroleum Exporting Counties to extend production cuts this year.

"Gasoline's been really beaten up," said Ric Navy, senior vice president for energy futures at brokerage R.J. O'Brien & Associates LLC. "It's throwing people for a loop."

Gasoline stockpiles grew by 3.4 million barrels last week and diesel stockpiles increased by 2.7 million barrels, as consumer demand failed to absorb a steady stream of petroleum products pumped out by refineries working at almost top efficiency levels. Refinery utilization was 94.1%, the highest level for this time of year since April 2001.

Inventories rose because of two weeks of high imports, which reached a six-month high of 916 thousand barrels a day, said Standard Chartered in a recent report.

"There is a deeply bearish market sentiment that is going to pick up on rising gasoline stockpiles despite crude inventories falling," said Paul Horsnell, the head of commodity research at Standard Chartered. "There is impatience that OPEC can't clear the surplus."

Last year OPEC and external producers such as Russia signed a deal to curtail global production by about 1.8 million barrels a day. But the initial oil rally has been undermined by a steady build in U.S. shale production.

"The problem with the oil market clearly lies with the U.S. oil producer, " said Kyle Cooper, a consultant for Ion Energy Group in Houston. "With the fact that OPEC has cut and yet inventories haven't drawn even more, that is a bit concerning."

The OPEC deal helped bolster crude prices into the end of 2016, but some analysts say the oil cartel needs to extend the agreement to make a dent in global stocks. OPEC is scheduled to decide on whether to extend the deal at its meeting on May 25 in Vienna.

Russia may yet throw a wrench in that process. The country's energy minister, Alexander Novak, is reported to have said a decision to prolong the deal was still "under discussion," spooking investors. The prospect of increasing production in individual countries such as Iran, Iraq and Libya has also threatened to derail the impacts of OPEC's supply cuts.

"There is no obviously bullish factor in the market. I don't see any big change," said Li Li, energy research director at ICIS China. "I think the market will be focusing on the OPEC meeting next month."

Low oil prices haven't only affected margins, but also hurt oil exploration. Global oil discoveries fell to a record low last year as companies cut spending, and oil projects sanctioned were at the lowest level in more than 70 years, the International Energy Agency said, warning that the trend would likely continue this year.

Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels a year over the past 15 years, while the volume of conventional resources sanctioned for development last year fell by 30% to 4.7 billion barrels last year.

Gasoline futures fell 2.5% to $1.5500 a gallon, closing at a two-month low. Diesel futures fell 1.9% to $1.5072 a gallon, a one-month low.

Biman Mukherji contributed to this article

Write to Stephanie Yang at stephanie.yang@wsj.com and Neanda Salvaterra at neanda.salvaterra@wsj.com

(END) Dow Jones Newswires

April 27, 2017 17:34 ET (21:34 GMT)