The price of Brent crude has dropped below $50, the lowest in almost four months, as surging US stockpiles dim optimism that OPEC and its partners output cut will rebalance the market.
The global benchmark fell below $50 a barrel for the first time this year during yesterday’s session. American crude supplies hit a record last week and output rose as the nation’s oil drillers added rigs. Prices came off the day’s lows as attention shifted to gasoline stockpiles, which slipped for a fifth week. The Organization of Petroleum Exporting Countries and 11 other nations began trimming supply for six months starting Jan. 1 in an effort to ease a global supply glut.
While OPEC won’t decide until May whether to prolong the cuts, ministers and officials from outside the group will meet this weekend in Kuwait to discuss the deal’s progress. OPEC will extend the deal if stockpiles are still above their five-year average, Saudi Arabia Energy Minister Khalid Al-Falih said in an interview with Bloomberg Television last week.
Chip Hodge, who oversees a $12 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said: “This has got to hurt Middle East producers a lot.
“Given where inventories are and the rise in the US drilling, there’s no impetus to move prices higher.”
Brent for May settlement declined 32 cents to $50.64 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Nov. 30, the day that OPEC agreed to its historic output-reduction deal. Brent slipped as much as $1.25 to $49.71 during trading and settled below the 200-day moving average for the first time since mid-November. Total volume traded was about 43 percent above the 100-day average.
West Texas Intermediate for May delivery dropped 20 cents, or 0.4 percent, to settle at $48.04 a barrel on the New York Mercantile Exchange. The U.S. benchmark closed at a $2.60 discount to Brent.
U.S. crude supplies climbed 4.95 million barrels to the highest in weekly Energy Information Administration data going back to 1982. Stockpiles at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, rose 1.42 million barrels.
Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said: “There’s just too much oil out there.
“We keep being told the market will rebalance and we’re not seeing any evidence. It’s hard to maintain a bullish posture here.”
American crude production increased for a fifth week to 9.13 million barrels a day, the most since February 2016. U.S. oil drillers boosted the rig count to 631 last week, the most since September 2015, Baker Hughes data show.
Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida, said: “The U.S. is clearly going to be the last market to feel the effect of the OPEC, non-OPEC agreement because we have relentless growth in domestic production.”
Gasoline stockpiles fell to 243.5 million barrels, while inventories of distillate fuel, a category that includes diesel and heating oil, dropped to 155.4 million barrels, the lowest this year.
“The inventory report wasn’t as bearish as it first looked,” Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone. “The product drops kind of offset the crude build.”