Oil headed for its biggest weekly loss since early March as signs that OPEC will continue with output reductions was offset by growing U.S. production.
Front-month futures in New York are down more than 5 percent this week. While a number of exporters have reached an initial deal to extend the curbs past June, according to Saudi Arabian Oil Minister Khalid Al-Falih, data showing rising U.S. output is raising concern that those cuts will be undermined. OPEC and its allies have failed after three months of cuts to achieve their target of trimming global supplies below the five-year historical average, Al-Falih said.
“It all comes down to whether OPEC can deliver inventory cuts,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “So far we haven’t seen a lot of evidence that they’re succeeding. ’
Oil’s rally has faltered after three straight weekly gains on expectations the Organization of Petroleum Exporting Countries and its allies will extend its supply reductions. Prices dropped 3.8 percent on Wednesday after data showed U.S. crude production rose for a ninth straight week, even as stockpiles continued to decline from a record.
West Texas Intermediate for June delivery slipped 22 cents, or 0.4 percent, to $50.49 a barrel at 10:04 a.m. on the New York Mercantile Exchange. Total volume traded was about 36 percent below the 100-day average. The May contract expired Thursday down 17 cents at $50.27, the lowest close for front-month futures since April 3.
Brent for June settlement slipped 21 cents to $52.78 a barrel on the London-based ICE Futures Europe exchange. Prices are down 5.6 percent this week. The global benchmark crude traded at a $2.29 premium to WTI.
Goldman Sachs Group Inc. said there’s no fundamental evidence in the oil market to justify the slide, which was driven by technical indicators.
“We view technicals rather than fundamentals as the driver of this move lower,” Goldman said in an April 20 report, referring to Wednesday’s drop. The U.S. inventory data released the same day was “in line with expectations,” and the slide accelerated as prices traded through their 50- and 100-day moving averages, the bank said.
OPEC will decide at a meeting on May 25 whether to prolong its pledged cuts into the second half of the year.
“We are once again seeing the emerging stalemate between OPEC and non-OPEC cutting efforts on one side and rising U.S. production on the other,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “We are currently testing the lower end of the range. This market is unlikely to go anywhere for the foreseeable future.”
Gulf Cooperation Council countries agreed to push for an extension to the OPEC-led cuts in a meeting on Wednesday, Oman Oil Minister Mohammed Al Rumhy said in an interview in Abu Dhabi. Libya’s El-Feel oil field is ready to resume production after a two-year halt in operations that crimped the OPEC nation’s output, but there’s a problem: It doesn’t have enough electricity to pump the crude.