By Mark Shenk, Published Wednesday, Mar. 22, 2017, Bloomberg News.
Brent crude fell below $50 a barrel for the first time this year as surging U.S. stockpiles dim optimism that OPEC and its partners will curb output enough to rebalance the market.
The global benchmark slipped as much as 2.5 per cent. American crude supplies hit a record last week and production has increased as the nation’s oil drillers have been adding rigs. The Organization of Petroleum Exporting Countries and 11 other nations began trimming supply for six months starting Jan. 1 in an effort to ease a global supply glut.
While OPEC won’t decide until May whether to prolong the cuts, ministers and officials from outside the group will meet this weekend in Kuwait to discuss the deal’s progress. OPEC will extend the deal if stockpiles are still above their five-year average, Saudi Arabia Energy Minister Khalid Al-Falih said in an interview with Bloomberg Television last week.
“This has got to hurt Middle East producers a lot,” Chip Hodge, who oversees a $12-billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by telephone. “Given where inventories are and the rise in the U.S. drilling, there’s no impetus to move prices higher.”
Brent for May settlement declined as much as $1.25 to $49.71 a barrel on the London-based ICE Futures Europe exchange, the first time below $50 a barrel since Nov. 30, the day that OPEC agreed to its historic output-reduction deal. Brent slipped 57 cents to $50.39 at 11:55 a.m. in New York. Total volume traded was about 46 per cent above the 100-day average.
West Texas Intermediate crude, the U.S. benchmark, fell below $50 a barrel on March 9 for the first time since December amid rising American inventories and output. WTI for May delivery dropped 45 cents to $47.79 a barrel. The U.S. benchmark oil traded at a $2.60 discount to Brent.
U.S. crude supplies climbed 4.95 million barrels to the highest in weekly Energy Information Administration data going back to 1982. Stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, rose 1.42 million barrels.
“There’s just too much oil out there,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. “We keep being told the market will rebalance and we’re not seeing any evidence. It’s hard to maintain a bullish posture here.”
American crude production increased for a fifth week to 9.13 million barrels a day, the most since February 2016. U.S. oil drillers boosted the rig count to 631 last week, the most since September 2015, Baker Hughes data show.
“The U.S. is clearly going to be the last market to feel the effect of the OPEC, non-OPEC agreement because we have relentless growth in domestic production,” Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida, said by telephone.
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