Oil Rally Stalls as Market Awaits Signs US Supply Glut Easing

(Bloomberg) -- Oil investors are taking a break as they await further signs that U.S. oil inventories are falling.

Futures slipped 0.4 percent in New York after climbing 2.1 percent on Monday. The rally driven by Saudi and Russian  pledges to extend output cuts lost steam as investors await U.S. crude inventory data to be released by an industry group on Tuesday and by the government on Wednesday.

Russia and Saudi Arabia, the largest of the 24 producers that agreed to a deal to cut supply for six months starting in January, are reaffirming their commitment, which should prompt other countries to follow, according to Goldman Sachs Group Inc. There’s still concern that a surge in U.S. production, together with an increase in Libyan output and signs of recovery in Nigeria, may undercut the Organization of Petroleum Exporting Countries’ strategy to stabilize the market and prop up prices.

"We’re going to be in a holding pattern until we see the inventory reports," Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida, said by telephone. "Given recent U.S. inventory declines we can expect markets to balance in 2018 if OPEC maintains the cuts. It’s taking longer than expected."

West Texas Intermediate for June delivery dropped 19 cents to settle at $48.66 a barrel on the New York Mercantile Exchange. The contract rose $1.01 to close at $48.85 on Monday, the highest since April 28. Total volume traded was about 24 percent above the 100-day average.

U.S. Supplies

Brent for July settlement decreased 17 cents to $51.65 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.65 premium to July WTI.

The Saudi-Russia announcement on Monday will probably extend a price rebound that began last week, though the rally is “modest” compared with the increase that came after the OPEC cuts were first announced late last year, Goldman Sachs analysts including Damien Courvalin said in a report.

The U.S. Energy Information Administration is projected to report that crude stockpiles declined by 2.67 million barrels in the week ended May 12, according to a Bloomberg survey of analysts. Supplies of gasoline probably dropped 1 million barrels, while inventories of distillate fuel, a category that includes diesel and heating oil, slipped 1.45 million barrels last week.

The world’s oil stockpiles increased only slightly in the first quarter and are set to decline in the second as demand picks up seasonally and OPEC constrains output, the International Energy Agency said Tuesday in its monthly report. Still, even if OPEC and its partners prolong their measures when they meet next week, inventories will probably remain above average through the end of the year, it said.

"The backing of a nine-month extension by Saudi Arabia and Russia got the market moving higher," Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone. "We want to start to see inventories fall."

Oil-market news:

OPEC’s net oil-export revenue will probably rise this year after falling to a 12-year low in 2016, the U.S. Energy Information Administration said Monday. Saudi Aramco plans to sign agreements with at least 10 energy companies including GE, Schlumberger, Baker Hughes and Halliburton on May 20 during U.S. President Donald Trump’s visit to Saudi Arabia, according to two people familiar with the matter. OPEC April crude production rose by 65,000 barrels a day to 31.78 million barrels, led by Nigeria and Saudi Arabia, the IEA said in its monthly report.

With assistance from Grant Smith. To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Jim Efstathiou Jr., Stephen Cunningham


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