Oil Snaps Winning Streak as Doubts Over OPEC Cuts Weigh on Price

Jul 17, 2017 3:08 pm ET

(Bloomberg) -- Oil slid in New York as the market searches for more evidence that OPEC’s cuts are working.

Futures declined 1.1 percent, snapping last week’s 5.2 percent gain. OPEC’s implementation of output cuts slipped to 92 percent in June, from 110 percent in May, according to a person familiar with the matter. Doubts on the effectiveness of the group’s deal to reduce output remain, even as U.S. crude and gasoline stockpiles drop. The Energy Information Administration sees crude output at major U.S. shale plays reaching 5.58 million barrels a day in August, an all-time high.

“It seems like we’ve kind of found a new value range around $45” and the market is hunting for its next real driver, Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut, said by telephone. Recent declines in U.S. supplies suggested that OPEC’s cuts might be working, “but we need more evidence of that to really boost prices. There’s a little skepticism developing that these draws in U.S. crude inventories are related more toward a pick-up in seasonal demand,” he said.

Prices in New York have languished below $50 a barrel on concerns elevated global supplies will offset output curbs by the Organization of Petroleum Exporting Countries and its allies. Citigroup Inc. cut its oil-price forecasts for this year and next as OPEC members Nigeria and Libya restore previously halted supplies and American output climbs. U.S. shale drillers added two oil rigs last week for a second week of renewed growth after drillers snapped a 23-week stretch of increases at the end of June.

West Texas Intermediate for August delivery fell 52 cents to settle at $46.02 a barrel on the New York Mercantile Exchange. Total volume traded was about 4 percent above the 100-day average. Prices gained $2.31 to $46.54 a barrel last week.

OPEC Pumps

Brent for September settlement declined 49 cents to end the session at $48.42 a barrel on the London-based ICE Futures Europe exchange. Prices climbed 4.7 percent last week. The global benchmark crude traded at a premium of $2.19 to September WTI. Total volume traded was about 32 percent below the 100-day average.

See also: Oil gets respite as short-sellers give summer optimism a chance

The 11 OPEC members bound by the Nov. 30 output agreement pumped 29.89 million barrels a day in June, up from 29.69 million in May, according to a person familiar with the matter, citing the group’s secondary sources data, revised to include all figures from all parties.

An Energy Information Administration report last week showed that U.S. crude supplies declined 7.56 million barrels in the week ended July 7, the biggest drop since September. Gasoline inventories fell 1.65 million barrels. Crude inventories decreased 1.5 million barrels in the week ended July 14, according to a forecast compiled by Bloomberg.

China, the world’s second-largest economy, expanded by 6.9 percent in the second quarter from a year earlier, compared with the 6.8 percent median estimate in a Bloomberg survey.

“The Chinese economic data is pretty good, but not great,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. “We are in the summer doldrums. There hasn’t been any real strong political news or strong fundamentals to drive us either way.”

Oil-market news:

  • Libya’s oil output is said to increase to 1.1 million barrels a day, according to a person with direct knowledge of the matter, who asked not to be identified.
  • Investors pulled $92.6 million from the U.S. Oil Fund last week, following a $357.6 million outflow the week before, data compiled by Bloomberg show. That’s the largest two-week outflow since early December.
  • Oil equipment makers and oilfield-service companies are warning that a Senate-passed sanctions bill will do little damage to Russia -- "and may even help it" -- while harming U.S. businesses working around the globe.

--With assistance from Heesu Lee and Grant Smith

©2017 Bloomberg L.P.