Oil drops for third day as Libya supply seen fueling global glut

The Floatel Victory
The Floatel Victory

Oil fell for a third day as rising Libyan production fueled speculation OPEC members will prolong a supply glut.

Futures dropped as much as 0.6 percent in New York. Libya’s output has climbed to 500,000 barrels a day, Libya News Agency reported, citing an unidentified official at National Oil Corp. Drillers in the U.S., the world’s biggest crude consumer, reduced the number of active rigs for a 27th week, data from Baker Hughes Inc. showed.

Oil’s recovery from a six-year low has faltered near $60 a barrel as the price advance of almost 40 percent since March spurs production. Saudi Arabia, Iraq and the United Arab Emirates are pumping at a record, even as the Organization of Petroleum Exporting Countries agreed June 5 to maintain its output quota to defend market share.

“The softness that we’re seeing reflects the potential for supply to come back online,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney. “Not only does OPEC and the Saudis have the capacity to increase, but some of the shuttered production in the U.S. has the potential to resume if there are further price rises.”

West Texas Intermediate for July delivery declined as much as 34 cents to $59.62 a barrel in electronic trading on the New York Mercantile Exchange and was at $59.73 at 1:18 p.m. Sydney time. The contract lost 81 cents to $59.96 on Friday. Total volume was about 40 percent below the 100-day average. Prices have gained 12 percent this year.

OPEC Output

Brent for July settlement, which expires Monday, slid as much as 55 cents, or 0.9 percent, to $63.32 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $3.78 to WTI. The more-active August contract decreased 29 cents to $64.35.

OPEC, whose 12 members pump about 40 percent of the world’s oil, has been boosting supply as it seeks to force higher-cost producers to cut output. The group has exceeded its target of 30 million barrels a day the past year, data compiled by Bloomberg showed. Saudi Arabia, Iraq and the U.A.E, the three largest producers, pumped at a record in May, the International Energy Agency reported June 11.

In the U.S., drillers seeking oil reduced the number of active rigs by seven to 635 in the week ended June 12, Baker Hughes, an oilfield-services company, said Friday. The nation’s rig count has shrunk 60 percent since December.

Hedge funds cut bullish wagers on WTI to the lowest level in eight weeks, according to Commodity Futures Trading Commission data. Net-long positions fell by 3.7 percent in the seven days to June 9, while longs declined to a five-month low.

Oil is sliding with the euro and Asian stocks as talks between Greece and its creditors broke down Sunday without a deal on bailout aid. This week could determine the country’s ability to avert default and its continued membership in the 19- nation euro area.