Sun, Jun 03, 2018 - Page 14 News List

Crude lowest in a month as US boosts output, OPEC mulls relaxing limits


Oil dropped to the lowest level in more than a month amid surging US output, and signs that OPEC and Russia might ease production limits.

Unprecedented US production and transportation bottlenecks at the biggest US oil field are weighing on West Texas Intermediate (WTI) crude.

Meanwhile, Saudi Arabia and Russia have said they might push more supplies onto global markets.

“When you look at the production we’ve had in the US, it continues to ramp up and you end up having some capacity constraints with the pipelines,” said Mark Watkins, who helps oversee US$151 billion at US Bank Wealth Management. “Overseas, as people are wanting our cheaper oil, we’ve go to get it to port cities to ship that off and there’s not a quick fix for this.”

Saudi Arabia and Russia last week said that they are considering raising production, yet there are questions as to whether other nations would be on board with the proposal.

Russia’s largest oil company, Rosneft PJSC, is testing its capacity to bring back production it cut under the OPEC-led accord, Renaissance Capital LLC said.

WTI for July settlement slid US$1.23 to close at US$65.81 a barrel on the New York Mercantile Exchange. The contract is down 3.1 percent this week.

Brent for August dropped US$0.77 to end the session at US$76.79 a barrel on the London-based ICE Futures Europe exchange. The contract gained 0.5 percent this week.

The global benchmark is at a US$11.02 premium to WTI for the same month.

In the US, crude production jumped to another record high, according to Energy Information Administration data released on Thursday.

The oil rig count in the US also increased this week and activity levels in the Permian Basin of West Texas and New Mexico continue to rise, according to a Rystad Energy report released on Thursday.

“With so much production in the Permian and it’s obvious we don’t have enough pipeline capacity, it’s no surprise you are seeing that divergence between Brent and WTI,” said Joseph Bozoyan, a portfolio manager at Manulife Asset Management LLC in Boston. “There is not a lot of new pipeline capacity coming online until next year, so it could be something that persists at least through this year.”

Valero Energy Corp’s Memphis refinery in Tennessee plans to shut its larger crude unit next month, according to people familiar with operations.

The shutdown could lead to a build-up of crude at the key Cushing, Oklahoma, storage hub.

The spread between front-month and second-month WTI contracts narrowed to US$0.04 on Friday, from US$0.13 on Thursday.

The gap, an indication of a tight market and strong demand known as backwardation, shrank from US$0.38 at the start of February.

Oil market news:

‧ Gasoline futures dipped 0.8 percent to settle at US$2.1434 a gallon.

‧ Money managers decreased bullish ICE Brent crude oil bets by 49,638 net long positions to 451,996, the lowest level since September last year.

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