BLBG: Oil Pares Record Rally on Signs $60 Crude May Sustain Glut
Oil pared its ninth weekly advance, the longest rising streak since trading started in 1983, amid speculation the market’s rebound to $60 a barrel will sustain a global supply glut.
Futures slid as much as 0.8 percent in New York, retreating for a third day. OPEC and U.S. shale explorers are set to expand production later this year, preventing further price gains, said Pierre Andurand, a hedge fund manager. Crude stockpiles in the U.S., the world’s biggest consumer, are more than 100 million barrels above the five-year seasonal average, government data show.
Oil’s rally from a six-year low in March is stalling as U.S. output remains near a record even as the number of rigs drilling for oil in the nation shrinks. Gulf members of the Organization of Petroleum Exporting Countries are boosting supplies as they escalate a battle to defend market share, the International Energy Agency said. The price recovery threatens to prolong the surplus, according to Goldman Sachs Group Inc.
“The first battle may have been won by OPEC, as the U.S. rig count has fallen massively, but the second battle will go to shale,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “As prices rise again above $60 and producers cut their costs, they will be able to revive production.”
West Texas Intermediate for June delivery declined as much as 48 cents to $59.40 a barrel in electronic trading on the New York Mercantile Exchange and was at $59.60 at 9:24 a.m. London time. The contract dropped 62 cents to $59.88 on Thursday. Prices have added 0.4 percent this week.
Global Supply
Brent for July settlement slipped 10 cents to $66.60 a barrel on the London-based ICE Futures Europe exchange. It has gained 1.9 percent this week. The European benchmark crude traded at a premium of $6.06 to WTI for the same month. The June contract expired Thursday after falling 22 cents to $66.59.
Oil prices will remain “relatively low” for the next two years as a rebound in recent months allows U.S. companies to revive output, according to Andurand, who generated a 38 percent return in 2014 from wagering that oil would fall. OPEC members including Saudi Arabia, the United Arab Emirates and Kuwait are raising their production, he said in a Bloomberg Television interview in New York.
U.S. crude inventories decreased for a second week to 484.8 million barrels through May 8, the Energy Information Administration reported Wednesday. Stockpiles are still near the highest level since 1930, based on monthly records from the Energy Department’s statistical arm dating back to 1920.
OPEC Defense
While the U.S. shale oil industry appears to have “blinked” in the face of OPEC’s resistance to cutting supply, producers including Russia are coping better than expected with low prices, the IEA said in its monthly report on May 13.
OPEC, whose 12 members pump about 40 percent of the world’s crude, decided in November to maintain its output target at 30 million barrels a day. The group is scheduled to meet again on June 5 in Vienna.
The Chicago Board Options Exchange Crude Oil Volatility Index dropped for the fourth time in five days on Thursday. The gauge of hedging costs on the U.S. Oil Fund, the biggest exchange-traded fund tracking crude futures, closed at 32.63, the lowest since Nov. 12.
Sixteen of 26 analysts and traders, or 62 percent, were bearish on WTI, while six were bullish, a Bloomberg survey showed Thursday.
