Oil prices declined for the week of July 3, as expanded U.S. drilling activity and added production offset a larger-than-expected drop in stockpiles.
Futures fell 3.9%, even after U.S. data on July 6 showed the nation’s crude stockpiles dropped by 6.3 million barrels, three times as much as expected. U.S. drillers went back to adding rigs during the week, after breaking a record streak of expansion. Investors remain doubtful that OPEC-led production cuts will clear a global glut as Russia and Saudi Arabia appear to be less committed than earlier in the year, while U.S. production has been rising for most of this year.
“The market remains unconvinced because the fundamentals remain unconvincing,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle, which oversees $142 billion of assets. “Excess supply is still what’s controlling market prices.”
Oil’s longest rally in 2017 faltered during the week of July 3 after Russia was said to oppose deeper supply cuts by the Organization of Petroleum Exporting Countries and its partners. Saudi production increased in June by the most in almost a year, according to a Bloomberg survey. The oversupply concerns have kept futures below $50 a barrel for the past six weeks.
“Oil remains volatile, unable to hold onto gains, even after strong inventory draws in the U.S.,” said Jan Edelmann, an analyst at HSH Nordbank AG in Hamburg, Germany. “While the strong draws are a step in the right direction, multiple weeks of the same are now needed for the rebalancing.”
West Texas Intermediate for August delivery lost as much as $1.74 to $43.78 a barrel on the New York Mercantile Exchange and settled $1.29 lower at $44.23.
Brent for September settlement closed $1.40 lower at $46.71 a barrel on the London-based ICE Futures Europe exchange. Prices are down 2.5% in the week of July 3. The global benchmark traded at a premium of $2.32 to September WTI.
U.S. crude production increased by 88,000 barrels a day in the week of June 26 to 9.34 million, the EIA said in a report July 6. Output had slid by 100,000 barrels a day through June 23 because of field maintenance in Alaska and the impact of tropical storm Cindy. Gasoline stockpiles fell by 3.7 million barrels.
Russia wants to stick to the current OPEC deal and would oppose any proposal for deeper production cuts at the group’s ministerial meeting later in July, four Russian government officials said in the week of July 3. Russia remains willing to weigh any proposals from its allies at the summit in St. Petersburg, the Energy Ministry said in a statement July 7.
• Now is the time to maximize the effects of OPEC’s oil production cuts, yet the market is still waiting for the group’s biggest member to show it’s doing “whatever it takes” to eliminate the global oversupply.
• The world’s biggest energy traders are betting shale oil production is here to stay with deals to secure access to U.S. supply and infrastructure.