Oil Falls as US Crude Supply Glut Seen Shifting to Fuel Tanks

Daniel Acker/Bloomberg News

Oil fell to the lowest in more than a month as the U.S. crude glut is seen moving to brimming fuel tanks. 

The drop intensified after Saudi Arabia signaled it’s faring better than expected with low prices.

Futures closed 2.4% lower in New York. While U.S. crude supplies are forecast to have decreased, inventories of gasoline and distillate fuel are seen rising, according to a Bloomberg News survey before a report from the Energy Information Administration on May 3.

Meanwhile, Saudi Arabia’s budget deficit narrowed more than expected, its economy dodged a recession and non-oil revenue beat estimates in the first quarter, Deputy Crown Prince Mohammed bin Salman said in an interview aired on Al Ekhbariya.

Oil has fallen the past two weeks on concern that increasing U.S. crude production will offset efforts by the Organization of Petroleum Exporting Countries and its allies to eliminate a global supply glut.

OPEC will meet again May 25 in Vienna to decide whether to extend the cuts through the second half of the year. There seems to a be a general consensus to do so, Khalid Al-Falih, the Saudi minister of energy and industry, said last week. Industry data showed American rigs targeting oil rose to the highest level in two years.

“We’re starting the weekly cycle of statistics,” Thomas Finlon, director of Energy Analytics Group in Wellington, Fla., said by telephone. “You can expect a lot of movement in the run-up to the data and after the releases.”

West Texas Intermediate for June delivery dropped $1.18 to settle at $47.66 a barrel on the New York Mercantile Exchange. Futures fell 1% to $48.84 on May 1, the lowest settlement since March 28. Total volume traded was about 7% above the 100-day average.

Brent for July settlement fell $1.06, or 2.4%, to $50.46 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $2.47 premium to July WTI.

U.S. gasoline supplies probably rose 1 million barrels last week and inventories of distillate fuel, a category that includes diesel and heating oil, increased by the same amount, according to a Bloomberg survey of analysts. Crude stockpiles are forecast to have dropped by 3.5 million barrels.

Russian Reduction

Prices rose earlier after data showed Russia’s oil production continued to decline in April as the country implements curbs agreed to with OPEC.

Russian crude output fell 0.5% to an average 10.995 million barrels a day in April, according to data emailed from the Russian Energy Ministry’s CDU-TEK unit. The monthly average is about 252,000 barrels a day below the October level — the reference point for the curbs. Energy Minister Alexander Novak said last week that Russia would reach the full 300,000 pledged cut by April 30.

“Prices rose earlier because Russian production was said to have declined to near the level they promised in the OPEC accord,” John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, said by telephone. “There’s growing skepticism about the effectiveness of the OPEC deal and whether they will be able to agree to an extension.”

OPEC Production

OPEC output fell by 40,000 barrels a day to 31.895 million barrels in April, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. Iraq, the second-biggest producer in the group, and Venezuela came closer to their targets.

Among the 10 members bound by the caps, compliance strengthened to 102% from 89% in March, the survey showed. Total output — including Libya and Nigeria — remains 135,000 barrels a day above target, putting the group about 90% of the way toward its goal.

All countries participating in the cuts must agree to any extension, United Arab Emirates Energy Minister Suhail Al Mazrouei said May 2 in the U.A.E. capital Abu Dhabi.

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