Oil drops as market awaits confirmation of steady supply decline

Oil prices had seemed to be on the verge of recovery.--- Reuters pic
Oil prices had seemed to be on the verge of recovery.--- Reuters pic

NEW YORK, Aug 1 — Oil fell back below US$50 (RM214) as investors wait for more evidence that global markets are rebalancing.

Futures fell as much as 1.5 per cent in new york after surging for the previous six sessions. US crude, gasoline and distillate stockpiles probably declined last week, according to a bloomberg survey before a report from the energy information administration wednesday.

The US$50-level is “a psychological level. People are really beginning to realize that the market probably needs a steady beat of bullish information to continue to rally,” Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut, said by telephone. “If we don’t get a really positive inventory report this week, the market is vulnerable to a nice little turnaround” after rallying the last couple of weeks, he said.

Oil jumped above the key US$50-a-barrel-level for the first time since May earlier this week. US crude imports from OPEC slid 2.6 per cent in May from April and shipments from the group may fall further this month as Saudi Arabia deepens cuts. While the Organization of Petroleum Exporting Countries and its allies work to rebalance the market and trim global inventories, doubts remain that supplies will increase from elsewhere, with the US oil rig count at the highest level since April 2015.

West Texas Intermediate for September delivery fell 65 cents to US$49.52 a barrel at 9:48 a.m. on the New York Mercantile Exchange. Total volume traded was about 26 per cent above the 100-day average. The contract gained 0.9 per cent to US$50.17 on Monday.

Brent for October settlement dropped 72 cents to US$52.00 a barrel on the London-based ICE Futures Europe exchange, and traded at a US$2.34 premium to WTI for the same month. The September contract expired Monday.

After six days of price gains “some kind of downside correction” should be expected, Tamas Varga, an analyst at PVM Oil Associates, said by phone.

US Inventories

US crude inventories probably dropped by 3.3 million barrels last week, according to the median estimate in a Bloomberg survey before an EIA report. Distillate stockpiles are seen falling by 950,000 barrels and gasoline supplies are seen dropping by 1.2 million barrels. Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest US oil-storage hub, probably dropped by 700,000 barrels last week, according to a forecast compiled by Bloomberg.

The recent inventory declines might be attributed to demand during the summer driving season, according to McGillian. “As we move through August, with the anticipation that driving demand is going to drop off, will some of these signs of a tightening inventory picture really just kind of disappear?”

The industry-funded American Petroleum Institute will release its inventory data later on today. — Bloomberg

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