Oil set for 1st monthly drop since August on US stockpile fear

Feb 28 2018 11:46
Sharon Cho, Bloomberg

Singapore - Oil is poised for its first monthly decline in six months as a rally at the start of the year fades on growing fears over booming US shale supply.

Futures in New York dropped 0.4% and are down 3.1% in February. An industry report was said to show US oil inventories rose last week, which would be the fourth expansion in five weeks if confirmed in government data. The head of OPEC plans to dine with shale producers in Houston next week at a time when America is pumping at record levels and threatening the group’s efforts to curb a glut.

After having the best start to the year in more than a decade, oil has had a tumultuous month. Prices tumbled early on in February following a global asset rout, only to recover some of their losses as equities rebounded.

While the Organisation of Petroleum Exporting Countries’ output curbs, a supply disruption in Libya and ongoing turmoil in Venezuela have helped buoy prices, expanding US shale production continues to haunt the market.

“Other than some temporary events among OPEC nations that drove a price rally, investors have been keeping their focus on the US supplies this month,” Will Yun, a Seoul-based commodities analyst at Hyundai Futures, said by phone.

“Oil prices are likely to be under pressure in the coming months as the market continues to absorb news on expanding supplies in the US, which is on path to be the world’s biggest crude producer.”

West Texas Intermediate for April delivery fell 27 cents to $62.74 a barrel on the New York Mercantile Exchange as of 3:48 pm in Singapore, on course for the first monthly decline since August. The 3.1% drop this month comes after prices rallied 37% in the five months through to the end of January. Total volume traded was about 5.1% below the 100-day average.

Brent for April settlement, which expires on Wednesday, slipped 0.3% to $66.45 a barrel on the London-based ICE Futures Europe Exchange. The contract lost 1.3% on Tuesday. The more-active May contract lost 17c to $66.35. The global benchmark crude traded at a $3.71 premium to April WTI.

US data

The American Petroleum Institute was said to report US oil stockpiles rose by 933 000 barrels last week. Government data Wednesday is forecast to show inventories rose by 3 million barrels, according to a Bloomberg survey.

US crude output is forecast to rise to a record level in February, stoking fears that shale producers may derail OPEC’s strategy of reducing output to clear a global glut. The producer group’s secretary general Mohammed Barkindo said he will meet with US shale company executives for dinner on Monday in Houston, the second time he has met with some of the cartel’s top rivals.

Other events that have influenced oil’s course this month were crises in OPEC members Venezuela and Libya. Libya’s oil exports from a key port will be “modified” after protests disrupted production, putting the nation’s crude output at risk of a decline again.

Meanwhile in Venezuela, the country’s oil sector is expected to be negatively impacted through 2022 on continued economic turmoil, according to Fitch’s BMI Research. The US is leaning toward imposing oil-sector sanctions on Venezuela before it holds elections in April.

Outside of OPEC, equities and the dollar have been a catalyst for oil’s price swing in February. A risk asset rout that started in the US stock market spread to crude, dragging down prices by as much as almost 10% in one week.

While futures have rebounded, the greenback’s strength is weighing on dollar-priced commodities. The Bloomberg Commodity Index is on course for a 1.4% slide this month, while the dollar added 1.2% in the same period, reducing the appeal of commodities priced in the currency.

Other oil-market news:

• Current “explosive growth” in US oil production could extend beyond 2018, International Energy Agency executive director Fatih Birol said in an interview on Bloomberg TV.

• Growing US shale production may push OPEC and its allies to “elect a more permanent form of cooperation” after the supply-cut agreement expires this year, according to BNP Paribas SA.

• US crude output is set for a record in February, with the monthly average hitting 10.072 million barrels a day, a Genscape report said on Monday.

• Ecuador’s oil production is below the nation’s pledged level under the output curb pact led by global producers including Saudi Arabia and Russia, its oil minister Carlos Perez said.

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commodities  |  markets  |  oil


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