Oil Slides on Signs of Oversupply
April 24 2017 - 4:25PM
Dow Jones News
By Timothy Puko, Sarah McFarlane and Jenny W. Hsu
Oil prices retreated Monday to their lowest point in four weeks,
as growing U.S. production and other signs of global oversupply
keep thwarting a widely-expected rally.
Monday's downturn from overnight gains is the latest sign oil
may continue to fall instead of rising toward $60 a barrel as many
predicted, brokers and analysts said. Losses Monday mark the sixth
down session in a row for U.S. oil. It is now off 8.5% from the
one-month high it hit April 11 and starting only its second stretch
of the year below $50 a barrel.
Light, sweet crude for June settled down 39 cents, or 0.8%, at
$49.23 a barrel on the New York Mercantile Exchange. It is the
lowest settlement since March 28.
What had been a calm time in the crude markets came to an abrupt
end last week as data showing growing U.S. production and gasoline
stockpiles caused a sharp selloff Wednesday. Money managers ran up
a record bullish bet on oil after cuts from the world's big
exporters led many to believe stockpiles would shrink -- and
selloffs have followed this year as U.S. stockpile drains have been
limited. A liquidation of some of those bets is probably feeding on
itself, brokers said.
"The pressure valve was the (speculators) bailing on the
market," said Bob Yawger, director of the futures division at
Mizuho Securities USA Inc. "Since then we've been pretty much in a
death spiral."
In addition to the losing streak, the market has now retreated
from early gains in each of the last three sessions. That is likely
another sign the momentum and sentiment from traders has switched
from bullish to bearish, brokers and analysts said.
"We're potentially just getting started," said Oliver Sloup,
director of managed futures at brokerage iiTrader in Chicago. "What
(those exporters) are giving up in market share, it seems the U.S.
is stepping in and trying to pick up as much as possible."
Traders are still concerned with data from Friday that showed
another in a long string of increases to the fleet of working oil
rigs, and a growing amount of oil shipments building up off the
U.S. Gulf Coast. More data from over the weekend from data-tracking
firm ClipperData and the Singapore government show rising
stockpiles in Singapore, too, adding to the bearishness, analysts
said.
Investors are now wondering whether current production cuts by
the Organization of the Petroleum Exporting Countries and Russia
will ultimately be enough to sufficiently cut into global
supplies.
"In the second half of the year we will see strong production
growth from the U.S., making the job of OPEC more difficult," said
Giovanni Staunovo, analyst at UBS.
Mr. Staunovo said that when OPEC meets in May they will have to
assess whether their cuts have reduced global stocks while also
considering what impact reverting to higher output could have on
oil prices.
"Last year's decision was also related to the weaker OPEC
members wanting higher revenues and therefore I think it will be an
extension, based on the fact that it generates higher revenues," he
said.
Oil prices jumped around 20% last year after OPEC and other
major producers agreed to cut output by around 1.8 million barrels
a day for the first six months of 2017.
To date, the cartel has reached a tentative agreement to keep
those cuts up till beyond June, but there is no consensus for how
long.
"What worries the market is what if production cut doesn't work.
What else can OPEC do?" said Gao Jian, an analyst at SCI
International.
Gasoline futures lost 2.31 cents, or 1.4%, to $1.6214 a gallon,
the eighth losing session in the past nine. Diesel futures lost
1.06 cents, or 0.7%, to $1.5427 a gallon, extending a losing streak
to seven sessions. Both are at their lowest settlement since the
last week of March.
Write to Timothy Puko at tim.puko@wsj.com, Sarah McFarlane at
sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
April 24, 2017 16:10 ET (20:10 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.