Oil prices retreat further from $50 a barrel as supply report looms
London (Jun 1) Oil prices slid Wednesday as investors adopt a cautious stance ahead of the weekly U.S. crude inventory data and the biannual OPEC meeting, both scheduled for Thursday.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in July CLN6, -1.26% traded at $48.59 a barrel, down $0.51, or 1%, in the Globex electronic session. August Brent crude LCOQ6, -1.32% on London’s ICE Futures exchange fell $0.57, or 1.1%, to $49.32 a barrel.
Overnight, oil prices brushed against the $50 mark briefly before retreating, repeating a pattern from last week amid bearish suggestions from analysts that the strong rally may have been overextended on tenuous factors such as unplanned supply disruptions.
Wildfires in Canada’s oil-sand hub and the ongoing political strife in Nigeria buoyed prices to a nearly eight-month high, but as Canada is set to resume normal oil operations later this week, analysts are wary how long these bullish factors can last.
Moreover, members of the Organization of the Petroleum Exporting Countries are expected to stand pat on their “no-cut” tactic when they meet this week in Vienna. The view was reinforced when the United Arabs Emirates energy chief Suhail bin Mohammed al-Mazrouei on Tuesday said global oil markets are self-correcting in line with cartel policy.
“The comments suggest the cartel have little desire to alter the current ‘no limit’ production levels,” said Stuart Ive, a client manager at OM Financial.
Several top energy watchdogs predict global oil markets are becoming leaner due to steady production declines in non-OPEC countries. However, as competition for market shares within the cartel continues to heat up, OPEC production might climb, exacerbating the overall supply. In the cartel’s own monthly report, OPEC crude oil production rose 188,000 barrels a day in April to average 32.44 million barrels, according to secondary sources.
The Wall Street Journal also reported earlier this week that several OPEC envoys said a production cap has not been seen on the meeting agenda.
However, the fact remains that supply side is facing headwinds due to slashed budgets. In March, U.S. domestic production fell 0.1% to 9.1 million barrels, a 5.4% on-year decrease. China’s domestic crude production also fell 5.6% in April.
The Energy Information Administration will release the weekly U.S. oil data Thursday. An analyst survey by Platts estimates a 3.1-million barrel decrease in U.S. crude stocks for the week ended May 27.
But analysts worry as prices trend higher, U.S. shale producers, known for their efficiency, will crank up their taps quickly to capture the higher margin, pushing prices back into a rout. But others believe such speculation is overly optimistic.
“The price needed to reverse the decline in U.S. production is likely to be higher than currently anticipated...the ramp up in supply will be slower, and the supply gains will be more modest than in the boom years,” said a report published by Oxford Institute for Energy Studies.
“The switch-on-switch-off comparison simply does not hold,” the report noted.
Nymex reformulated gasoline blendstock for July RBN6, -0.77% — the benchmark gasoline contract — fell 0.9% to $1.60 a gallon.
Source: MarketWatch
