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Oil Prices slide amid glut concerns

US withdrawal from climate deal

CNBC

Oil prices dropped on Friday amid worries that U.S. President Donald Trump’s decision to abandon a global climate pact could spark more crude drilling in the United States, stoking a persistent glut in global supply.

Global benchmark Brent crude futures were down 23 cents, or 0.45 percent, at $50.4 a barrel by 0316 GMT.

U.S. West Texas Intermediate crude futures dropped 26 cents, or 0.54 percent, to $48.1 per barrel.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Commodity markets were absorbing news the United States would withdraw from the landmark 2015 global agreement to fight climate change, a move that fulfilled a major campaign pledge but drew condemnation from U.S. allies.

“This could lead to a drilling free for all in the U.S. and also see other signatories waver in their commitments,” said Jeffrey Halley, a senior market analyst at OANDA.

“This outcome could increase the supply-side equation from the United States and complicate OPEC’s forward projections. A scenario that would not be favorable to oil prices.”

Surging U.S. production has put a strain on OPEC members’ efforts to curb production to drain a global crude supply overhang and to prop up prices.

A week ago, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC members met in Vienna to roll over the output cut deal to reduce 1.8 million barrels per day (bpd) until the end of next March.

Faced with lingering glut woes, the oil cartel also discussed last week reducing output by a further 1 to 1.5 percent, and could revisit the proposal should inventories remain high, according to sources.

But oil markets were offered some support by official data that showed crude inventories in the United States, the world’s top oil consumer, fell sharply last week as refining and exports surged to record highs.

Level of volatility in oil market is of concern: OPEC SecGen

Level of volatility in oil market is of concern: OPEC secretary general   

Crude stockpiles were down to 6.4 million barrels in the week to May 26, beating analyst expectations for a decrease of 2.5 million barrels.

However, U.S. crude production rose to 9.34 million bpd last week, up nearly 500,000 bpd from a year ago.

“We may or may not see more huge draws. But crude production is slowly but surely going to neutralize the (OPEC-led)production cut,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Rising output from Nigeria and Libya is also undercutting the oil producers’ attempt to limit production. Nigeria and Libya are exempted from crimping output as they seek to restore supplies hurt by internal conflicts.

Libya’s oil production has risen to 827,000 bpd after technical problems were resolved at the Sharara field. That was above a three-year peak of 800,000 bpd reached earlier in May.

Oil just dropped to a 5-month low below $46 and analysts say it could go much further

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  • Benchmark oil futures fell to their lowest levels in five months on Thursday.
  • U.S. crude dropped below $47 a barrel, while Brent breached $50.
  • Analysts see support for U.S. crude around $45 a barrel and then at the $42 level.

Price of oil his 5-month low

Price of oil his 5-month low 

A worker prepares to lift drills by pulley to the main floor of a drilling rig in the Permian basin.

Oil prices plunge to five-month lows 

Oil prices struck a new 2017 low on Thursday as mixed U.S. stockpile data compounded bearishness that has permeated the energy complex in recent weeks.

U.S. West Texas Intermediate crude fell below $46 and international benchmark Brent breached $49, both sinking to the lowest level since Nov. 30, the day the Organization of the Petroleum Exporting Countries agreed to cut output.

Analysts said WTI could eventually decline to $42 now that it broke this key level.

U.S. West Texas Intermediate 3-day performance

The move lower came after the U.S. Energy Information Administration reported a much smaller-than-expected drop in crude oil inventories and another week of soft gasoline demand.

John Kilduff, founding partner at energy hedge fund Again Capital, said there was no one headline moving oil on Thursday. Instead, he chalked it up to more technical trading.

“That $47 level … is huge,” he said.

On Tuesday, oil breached the previous week’s low of $48.20, sparking a round of high-volume, late-afternoon selling.

There is some support around the $45 level, Kilduff said. But if U.S. crude settles below $47 a barrel on Thursday, he believes the contract could plunge to the November lows of $42 a barrel.

Just before noon, U.S. crude broke through a major support zone at $45.90 flagged by Seaport Global Securities earlier in the day. The next critical level is $42.70, the firm said in a morning research note.

Roberto Friedlander, head of energy trading at Seaport Global Securities, pointed to “terrible” demand for refined products, uncertainty around future oil consumption and “what seems like an endless supply of oil.”

An oil well owned and operated by Apache Corporation in the Permian Basin are viewed on February 5, 2015 in Garden City, Texas.

Futures Now: Oil falls on supply data   

Both Kilduff and Friedlander said oil futures appeared to be getting caught up in a broader sell-off in commodities on concerns about Chinese demand.

Thursday’s sell-off appeared to validate the bearish views of technical traders who analyze charts, said Tom Kloza, global head of energy analysis at Oil Price Information Service.

“Chartists have been the smartest guys in the room, and the smartest guys in the room, their charts say expect something in the $45 to $46 range before this whole chapter is all done,” he said.

Investors are looking forward to OPEC’s May 25 meeting, where the exporter group will decide whether to extend its six-month production cut through the second half of 2017. OPEC and other exporters agreed to reduce output by 1.8 million barrels a day late last year.

While OPEC compliance has been good and many expect the group to extend its share of the cuts, global inventories have so far remained stubbornly high, including in the United States.

A Reuters survey indicating that compliance with the output cut deal fell among some OPEC members in April has weighed on oil prices. News of growing output from OPEC member Libya, which is exempt from the deal, also hurt sentiment.

Price of oil his 5-month low

Price of oil his 5-month low 

Oil Prices Pare Losses

 

A worker at the Nahr Bin Umar field, Iraq.

Essam Al-Sudani | Reuters
A worker at the Nahr Bin Umar field, Iraq.

Oil’s near week-long rally was under pressure on Wednesday after an unexpected drawdown in U.S. crude and gasoline stocks was offset by worries that Saudi Arabia was cranking output to record highs even as OPEC talked of ways to ease a global glut.

U.S. West Texas Intermediate crude futures settled at $46.79 a barrel, up 0.45 percent on the day or about 21 cents.

Brent crude futures rebounded from mid-day losses to trade 55 cents higher at $49.78 a barrel.

Oil rallied about 11 percent over the past four sessions since Saudi Arabia, the kingpin in the Organization of the Petroleum Exporting Countries, stoked speculation the group was ready to reach an output freeze agreement with non-OPEC producers.

The markets briefly extended gains after the U.S. Energy Information Administration (EIA) said domestic crude inventories fell 2.5 million barrels last week, surprising analysts who had expected a build of 522,000 barrels.

Gasoline stockpiles also fell 2.7 million barrels, more than expectations for a 1.6 million-barrel drop, the EIA data showed.

Barclays energy guru talks oil

Barclays’ energy guru talks oil   

The rally soon faded as the market focused more on a Reuters report that said Saudi Arabia could boost crude output in August to 10.8-10.9 million bpd, overtaking Russia’s production, even as OPEC aims for a pact to curb global output.

The Saudis told OPEC they pumped 10.67 million bpd in July, versus their previous record of 10.56 million in June 2015.

Saudi-based industry sources said earlier in the year they expected the kingdom’s output to edge near record highs to meet summer demand for power. But they said it was unlikely that Saudi output will flood the market.

“One certain thing to be aware of is the Reuters report that Saudis may increase production to new record highs pushing near 11 million barrels per day,” said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York.

“With the U.S. rig count coming back online for several weeks, even if a freeze did happen we would be talking about freezing at higher levels of output,” Zahir said.

Trading the crude rebound

Trading the crude rebound   

Before last week’s drawdown, U.S. crude stockpiles had risen unexpectedly in the previous three weeks. On top of that, the U.S. oil drilling rig count has risen without pause for seven weeks, signaling more production ahead.

The fight for market share among some OPEC producers has made market watchers doubtful that talks to rein in oversupply by freezing output levels would be successful.

Earlier reports of refinery outages in the United States, including a crude unit at Exxon Mobil’s 502,500 bpd plant at Baton Rouge in Louisiana, added to the market’s downside. The company had put on hold a contingency plan to shut its Baton Rouge, Louisiana refinery after it managed to start a liquefied petroleum gas (LPG) processing unit in the adjoining chemical plant, sources familiar with plant operations said.

An Exxon spokesman declined to comment.

“Contrary to some reports, the ExxonMobil Baton Rouge Complex is operating,” company spokesman Todd Spitler said in an email. “It is our practice not to comment on specific unit operations at our facilities. We do expect to meet contractual commitments.”

CNBC’s Tom DiChristopher and Jackie DeAngelis contributed to this story.