MW: Oil prices drop after record Saudi output; U.S. inventory data eyed
LONDON (MarketWatch) — Crude-oil futures fell more than 2% Wednesday on oversupply concerns ahead of U.S. inventory data, and after Saudi Arabia reported record output in March.
Overall, though, overall oil prices remain higher this week, and well above the lows seen in January.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in May CLK5, -2.30% fell $1.15, or 2.1%, to $52.83 a barrel, in the Globex electronic session. Nymex crude has gained around 10% over the last two trading sessions.
Brent crude for May delivery LCOK5, -1.44% on London’s ICE Futures exchange fell 85 cents, or 1.4%, to $58.25 a barrel. It gained around 7.5% in the last two sessions.
Oil prices have been volatile in recent weeks on the back of unrest in Yemen, the Iranian nuclear talks, wide swings in currency markets and indications of stronger oil demand.
Read: Russia nervously eyes the U.S.-Iran deal
Rising U.S. oil stockpiles and a resulting storage crunch have pressured U.S. oil prices, but investors are also increasingly factoring in bullish signs like the plateauing of U.S. oil-production levels.
Late Tuesday, the American Petroleum Institute said its survey showed U.S. crude-oil inventories rose by 12.2 million barrels last week. The U.S. Energy Information Administration’s more closely watched inventory report is due later Wednesday and analysts estimate a lower inventory increase of 3.4 million barrels.
Ahead of the EIA’s update, oil-field services supplier Baker Hughes on Wednesday said its average U.S. rig count for March was 1,110, down 238 from February, and down 693 from March of last year. March’s international rig count was 1,251, down 24 from February, and lower by 94 in the year-ago period.
Oil prices to stay lower for longer says Goldman Sachs
Saudis expects record-high output: Late Tuesday, Saudi Arabia’s oil minister Ali al-Naimi said its crude production will continue near its record high of around 10 million barrels per day, and said he expects prices to improve in the near future.
The OPEC countries, and particularly Saudi Arabia, have no intention of drastically reducing oil production as they know that this won’t alter total oil supply, as non-OPEC countries such as the U.S. and Canada would quickly step in to fill the gap, ABN Amro said in a report.
“In other words, the OPEC would merely lose market share without achieving its objective of raising oil prices,” it said. The bank said the ideal oil price is somewhere around $80 a barrel but reaching this equilibrium will be a prolonged process with great volatility.
ABN Amro expects oil prices to test new lows before recovering by year-end to around $60-$65 a barrel.
Nymex reformulated gasoline blendstock for May RBK5, -2.47% fell 4 cents to $1.8216 a gallon.
