Oil Falls as U.S. Production Rises
December 13 2017 - 12:30PM
Dow Jones News
By Sarah McFarlane
Oil prices flipped from gains to losses Wednesday, with the U.S.
benchmark trading lower after data showed that fuel inventories
rose and U.S. production increased.
And Brent prices fell as concerns eased about the impact of the
shutdown of a major pipeline system in the North Sea.
U.S. crude futures were down 36 cents, or 0.36%, to $56.78 a
barrel on the New York Mercantile Exchange. Brent, the global
benchmark, fell 74 cents, or 1.17%, to $62.60 a barrel on ICE
Futures Europe.
The amount of crude in storage in the U.S. fell by 5.1 million
barrels last week, according to data from the U.S. Energy
Information Administration.
While that beat the 2.9 million-barrel drop predicted by
analysts surveyed by The Wall Street Journal, the draw was smaller
than the 7.4 million barrel decrease reported late Tuesday by the
American Petroleum Institute, an industry group.
Gasoline stockpiles rose by 5.7 million barrels, exceeding
expectations.
"There's a concern that drops in crude stocks are being put into
fuel [storage] tanks. That doesn't make a real picture for strong
demand," said Gene McGillian, research manager at Tradition
Energy.
Also weighing on prices, U.S. crude output rose by 73 million
barrels a day to 9.78 million barrels a day -- a fresh weekly
record -- raising the prospect that shale producers will offset
extended production cuts by the Organization of the Petroleum
Exporting Countries and other major producers.
The U.S. Energy Information Administration on Tuesday raised its
forecast for U.S. 2018 production to average 10 million barrels a
day, compared with 9.2 million barrels a day in 2017 and exceeding
the previous record of 9.6 million barrels a day set in 1970.
The prospect of rising U.S. output might be scaring bullish
investors out of the market, said Tariq Zahir, managing member of
Tyche Capital Advisors. Investors built up record net long
positions in oil contracts in recent weeks in the run-up to the
decision by OPEC and its partners to continue cutting output
through the end of next year.
"With U.S. production going up again, stubbornly, is that going
to affect OPEC members going forward?" Mr. Zahir said. "Some weak
longs may be getting out."
Oil prices, particularly the Brent benchmark, jolted higher
earlier this week after Ineos, a chemical company, announced that
it was shutting down its Forties Pipeline System for a few weeks to
repair a leak. That will stop the flow of some 450,000 barrels a
day of North Sea oil output, forcing producers to shut in
production.
But Brent prices have fallen after briefly surging above $65 a
barrel Tuesday as investors took profits and concerns about the
duration and impact of the outage eased.
Analysts at Société Générale said Wednesday that despite the
disruption to the Forties system, there is still plenty of oil
available.
"Our view is that further upside due to this event is limited;
from current price levels, we believe the downside is bigger. The
bottom line is that we would currently be a seller, not a buyer, of
Brent," the analysts wrote.
Gasoline futures fell 3.4 cents, or 2%, to $1.6636 a gallon.
Diesel futures fell 1.85 cents, or 0.96%, to $1.9151 a gallon.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com
(END) Dow Jones Newswires
December 13, 2017 12:15 ET (17:15 GMT)
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