Oil dropped the most in two weeks as a report that OPEC’s July supply will be the highest this year fueled worries over a global glut.
Futures tumbled 2.5 percent in New York on Friday, erasing gains from earlier this week. Supply from OPEC is set to exceed 33 million barrels a day this month as members including Saudi Arabia and Nigeria increase shipments, according to tanker-tracker Petro-Logistics SA. This calls into question the effectiveness of the Organization of Petroleum Exporting Countries’ deal to reduce output and help rebalance the market as producers gather 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.”
Oil’s fleeting rallies have been held back by concerns that growing output in the U.S., Libya and Nigeria is offsetting other producers’ curbs, slowing the effort to shrink stockpiles. Earlier in the week, government data showed U.S. crude production rose to the highest level since July 2015 and OPEC member Ecuador said it would increase its production by year-end in order to raise revenue.
Something needs to be done about rising output from Libya and Nigeria or we will see “lower prices because U.S. production is still anticipated to increase,” James Williams, an economist at London, Arkansas-based energy-research firm WTRG Economics, said by telephone.
West Texas Intermediate for September delivery declined $1.15 to settle at $45.77 a barrel on the New York Mercantile Exchange, the lowest level in more than a week. Total volume traded was about 14 percent below the 100-day average. Futures have hit a wall every time they approached $48 this month.
See also: RBC sees uncertainty rising about OPEC deal on Ecuador exit, Nigeria
Brent for September settlement fell $1.24 to end the session at $48.06 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.29 to WTI.
Bloom Off the Rose
Several OPEC nations plus some non-members will meet in St. Petersburg to discuss the progress of the agreement to trim output. Libya and Nigeria, which have both boosted oil production since they were exempt from the deal, may be asked to cap their crude output, Kuwait Oil Minister Issam Almarzooq has said.
Meanwhile, government data earlier in the week showed U.S. crude stockpiles slid for a third week to the lowest level since January, and gasoline supplies fell by the most since March.
“Before this week’s report from the EIA, a lot of folks were thinking that there was a decent probability that Russia and Saudi Arabia might announce a little cut to compensate for Nigeria and Libya” Williams said. “But with three weeks of big drawdowns, they might have enough confidence that everything’s working and not do that. That would take a little bit of the bloom off the rose.”
U.S. oil rigs dropped by 1 to 764 this week, Baker Hughes Inc. data showed. U.S. crude imports from Saudi Arabia are set to fall to 847,000 barrels a day in July from 968,000 barrels a day last month, according to estimates from cargo-tracking company Kpler. 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.