Crude oil erases Opec rally as cuts seen ineffective at easing glut

A worker examines the valve of a pump on an Oil and Natural Gas Corp (ONGC) well on the western Indian city of Ahmedabad March 1, 2012. — Reuters pic
A worker examines the valve of a pump on an Oil and Natural Gas Corp (ONGC) well on the western Indian city of Ahmedabad March 1, 2012. — Reuters pic

LONDON, May 4 — Oil dropped to the lowest since late November on growing signs that Opec’s production cuts are failing to clear a surplus of crude.

Futures fell more than 2 per cent on both sides of the Atlantic. US crude output rose to 9.29 million barrels a day, the highest level since August 2015, according to the Energy Information Administration. Opec is likely to extend the 1.2 million barrel-a-day cut agreed to in November for six months, according to Nigerian Oil Minister Emmanuel Ibe Kachikwu. Energy and metal futures declined today on concerns over demand in China.

Oil is heading for a third weekly loss amid concern that increasing US output will offset efforts by the Organisation of Petroleum Exporting Countries and its allies to eliminate a global glut. Opec will meet May 25 in Vienna to decide whether to extend supply cuts through the second half. Russia is said to support prolonging the curbs, according to a government official.

“Evidence is mounting that the Opec agreement, and the market’s reaction, were much ado about nothing,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone.

West Texas Intermediate for June delivery fell US$1.06, or 2.2 per cent, to US$47.75 (RM206) a barrel at 9:31 am on the New York Mercantile Exchange. Futures touched US$46.60, the lowest since November 30. Total volume traded was about 47 per cent above the 100-day average.

Brent for July settlement dropped US$1, or 2 per cent, to US$49.79 a barrel on the London-based ICE Futures Europe exchange, falling below US$50 for the first time since March 22. It touched US$49.60, also the lowest since November 30. The global benchmark crude traded at a US$2.64 premium to July WTI.

US crude output increased by 28,000 barrels a day last week for the longest run of gains since the week ended November 23, 2012, according to EIA data. Nationwide stockpiles fell by 930,000 barrels, compared with the median estimate for a 3 million-barrel drop in the Bloomberg survey.

“The market appears to have temporarily lost faith in ever seeing an impact of the Opec cuts on inventories,” Michael Cohen, head of energy commodities research at Barclays Plc in New York. “We disagree and think that Opec will manage to extend the cuts and we’ll see inventories fall in the second half of the year.”

Oil-market news:

Royal Dutch Shell Plc reported first-quarter earnings of US$3.75 billion, compared with US$1.55 billion a year earlier. US shale driller Chesapeake Energy Corp posted its first quarterly profit since 2014 and braced shareholders for a production surge in the second half of the year as new natural gas and oil wells come online. Pemex is producing more gasoline and diesel at its six refineries across Mexico, reducing fuel imports and leaving less oil available for export. Saudi Arabia’s giant oil and gas reserves and any decisions about producing from them will remain solely in government hands after Saudi Aramco’s initial public offering, Deputy Crown Prince Mohammed bin Salman said on state television. — Bloomberg

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