Oil slid for a second day as a report that OPEC’s supply in July will be the highest this year fueled further worries that a global glut is persisting.
Futures fell as much as 1.9 percent in New York. Supply from OPEC members is set to exceed 33 million barrels a day in July, more than 600,000 barrels a day higher than the average in the first half of 2017, according to tanker-tracker Petro-Logistics SA. The data could reinforce skepticism about the effectiveness of the Organization of Petroleum Exporting Countries’ production cuts as officials from the group gather for meetings in St. Petersburg, Russia.
“To really see the market push much higher, we need to see a drumbeat that inventory levels are being pared like the main producers who are cutting production say is happening,” Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut, said by telephone. Without that, "further gains are going to be kind of tough to come by.”
Earlier in the week, government data showed U.S. crude production rose to the highest level since July 2015. Oil remains below $50 a barrel on concerns that growing output in the U.S., Libya and Nigeria is offsetting other producers’ curbs, slowing the effort to shrink stockpiles.
The report from Petro-Logistics found that Saudi Arabia, the United Arab Emirates and Nigeria are behind the extra barrels of output. Nigeria is exempt from making cuts as it tries to recover from disruption due to theft, sabotage and attacks by rebels.
The findings of Petro-Logistics further weaken “the foundations under the output deal, which is what the market is also saying by sending prices lower,” said Jens Naervig Pedersen, analyst at Danske Bank A/S. “It puts pressure on OPEC before the meeting this weekend.”
West Texas Intermediate for September delivery declined 82 cents to $46.10 a barrel at 10:11 a.m. on the New York Mercantile Exchange. Total volume traded was about 5 percent below the 100-day average. The August contract expired Thursday after falling by 33 cents to $46.79.
See also: RBC sees uncertainty rising about OPEC deal on Ecuador exit, Nigeria
Brent for September settlement fell 72 cents, or 1.5 percent, to $48.58 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.40 to WTI.
OPEC and its allies are working to pare global stockpiles relative to the five-year average. Saudi Arabia’s crude inventories have reached the lowest level since January 2012 as the world’s biggest oil exporter kept a lid on production and U.S. stockpiles have shown signs of decline. Still, the International Energy Agency said earlier this month that global supplies remain bloated.
Rising supply is a problem, both from within and outside the group. This week, OPEC member Ecuador said it would increase its production by year-end in order to raise revenue. This raises “uncertainty” about the deal, RBC said in a note. At current production levels, OPEC’s curbs won’t achieve their stated aim of reducing inventories to average levels by the time they expire in April, according to Bloomberg calculations using IEA data.
Oil-market and OPEC-related news:
- U.S. fuel oil demand is set to peak in August, further pressuring inventories after the nation’s refiners cut yields and the halt of Mexico’s Salina Cruz reduced supply, JBC Energy said in a note.
- Schlumberger Ltd., the world’s largest oilfield-services provider, agreed to buy a controlling stake in Russia’s market leader Eurasia Drilling Co., after opposition from the nation’s regulators derailed a similar plan two years ago.
--With assistance from Heesu Lee
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