Oil futures were under pressure on Wednesday after an industry group said U.S. oil and gasoline inventories rose last week, exacerbating fears that shale output is undercutting a multiproducer effort to drain oversupply.
Bargain-hunters and speculators sent prices higher overnight, but those gains were unwound after American Petroleum Institute data showed U.S. crude inventories rose 900,000 barrels last week while gasoline supplies jumped 4.4 million.
That cast a cloud over the market ahead of the U.S. government’s reading later Wednesday. But data from the API and Energy Information Administration don’t always match, so analysts’ forecasts of the government readings showing falling inventories for last week aren’t out of the question.
Still, the API finding increased oil supplies for last week is alarming because this is the time of year when stockpiles usually fall as refiners process more crude to make gasoline and diesel ahead of the summer driving season.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM7, -0.24% was recently down 4 cents at $49.42 a barrel in the Globex electronic session. June Brent crude LCOM7, -0.25% on London’s ICE Futures exchange was flat at $52.55.
Also key in the EIA data will be whether U.S. oil output continued to rise. Production has been rising weekly for more than two months, and if the upswing persists it may thwart an Organization of the Petroleum Exporting Countries-led effort to reduce global inventories to 5-year averages, analysts say.
Whether that deal gets extended beyond last month has helped pressure oil prices of late, down 7% last week and further this week.
Russia’s non-committal stance is another sore spot. So far, Moscow hasn’t signaled support for an extension to the output cuts. Without Russia’s participation, smaller producers may not be so willing to stick to their ends of the deal. Russia is the world’s biggest oil producer and agreed to cut 300,000 barrels a day of output by the end of this month.
If Russia backs away, that would shake up market psychology. But some say it may not necessarily derail OPEC’s effort because it could prompt other participants to cut more to prevent prices from slumping.
“Our base scenario assumes ongoing Russian cooperation, although we do consider it somewhat less likely than the OPEC extension,” said Timothy Evans, a Citi Futures analyst.
As Russia’s production is already close to maximum speed, even if it snubs OPEC and returns to normal production the increase may not be sufficient to offset others’ cuts, said Grace Liu, the head of research at Guatai Junan International.
Nymex reformulated gasoline blendstock for May RBM7, -0.95% — the benchmark gasoline contract — edged 0.9% lower to $1.608 a gallon, while May diesel traded at $1.54, down 0.3%. ICE gasoil for April was last up 0.7% at $466.57 a metric ton. (Market Watch)