Oil Falls to Three-Week Low on Rising U.S. Output

On Wednesday, global benchmark Brent crude futures were down 52 cents at $51.32 a barrel by 0838 GMT.

U.S. West Texas Intermediate crude CLc1 fell $1.34, or 2.7 percent, to settle at $48.32 per barrel, its lowest close since May 12.Brent's premium over the same U.S. month WTCLc1-LCOc1 narrowed to its lowest in nearly five weeks.For the month of May, Brent fell nearly 3 percent, its fifth straight monthly loss.

Libya's oil production is expected to rise to 800,000 bpd this week, state-run National Oil Corporation said on Monday, which is likely to boost the country's exports.

"This could lead to a drilling free for all in the US and also see other signatories waver in their commitments", said Jeffrey Halley, a senior market analyst at OANDA. In the past, it used to be OPEC member nations that set the tone, but USA shale and better and storage drilling methods have increased supply and lowered production costs.

"Sentiment is very poor and yesterday's survey from Reuters regarding OPEC production in May added to the scepticism about OPEC's capability to rebalance the market as quickly as hoped for", Commerzbank commodities analyst Carsten Fritsch told the Reuters Global Oil Forum.

Gasoline stocks fell by 2.9 million barrels, compared with analysts' expectations in an economists' poll for a 1.1-million-barrel drop. The oil price suffered famous "buy the rumor, sell the news" trade on the agreement day and has been struggling since. The number of rigs operating in USA fields has jumped by 11 to a total 733 last week, compared with 325 at this time previous year.

Major world stock markets rose on Thursday with each of the major USA indexes notching record highs on encouraging us economic data, while oil prices recovered from three-week lows following a bigger-than-expected drop in USA crude inventories.

Resurgent supplies from USA shale drillers and fading growth in fuel demand mean that world oil markets could face another overhang next year, the banks predict. But Russian Energy Minister Alexander Novak mentioned possibly extending cuts by a further three months, suggesting that he sees crude's war of attrition with shale oil producers dragging on.

The Organization of Petroleum Exporting Countries extended an agreement to cut crude supplies by 1.2 million bpd for the first half of 2017 by nine months to March 2018.

"U.S. oil inventories will decline seasonally in the summer months, but will remain well above the five-year average", Commerzbank analyst Carsten Fritsch said.

The EIA data showed that crude inventories dropped 6.4-million barrels, more than the 4.4-million-barrel drop forecast although a smaller drawdown that industry group the American Petroleum Institute's (API) report of a fall of 8.7-million barrels. It sees reducing oversupply as critical to stabilizing the market - hence the need to extend the cuts.

  • Zachary Reyes