Oil Retreats From 5-Month High as Global Surplus Seen Persisting

London (Apr 25)  Oil retreated from the highest close in five months amid signs a global glut will be prolonged as Middle East producers boost supplies.

Futures fell more than 1.8 percent in New York and London. Saudi Arabian Oil Co. will complete an expansion of its Shaybah oil field by the end of May, allowing the world’s largest crude exporter to maintain total capacity at 12 million barrels a day, according to two people with knowledge of the plan. Iran has increased output by 1 million barrels a day since sanctions were lifted in January, Shana reported, citing Oil Minister Bijan Namdar Zanganeh.

Oil has rebounded after falling to a 12-year low amid signs the global surplus will ease as U.S. production declines. The International Energy Agency reiterated on April 21 it expects output outside the Organization of Petroleum Exporting Countries to decline by about 700,000 barrels a day this year, which would be the biggest drop in a quarter century.

The news of Saudi Arabia expanding its field capacity “is marginally bearish,” according to Jens Pedersen, an analyst at Danske Bank A/S. “The oil market is coming off a strong week last week,” when West Texas Intermediate crude jumped more than 8 percent even after major oil producers failed to agree on an output freeze in Doha.

WTI, Brent

WTI for June delivery lost as much as 2.1 percent to $42.81 a barrel on the New York Mercantile Exchange and was at $43.31 as of 11:59 a.m. London time. The contract gained 55 cents to $43.73 on Friday, the highest close since Nov. 10. Total volume traded Monday was about 6.7 percent below the 100-day average.

Brent for June settlement slid as much as 85 cents, or 1.9 percent, to $44.26 a barrel on the London-based ICE Futures Europe exchange. Prices advanced 4.7 percent last week for a third weekly advance. The global benchmark crude was at a premium of $1.46 to WTI.

The production capacity of the Shaybah field will rise to 1 million barrels a day from 750,000 barrels, said the people, who asked not to be identified because the information isn’t public. The field, in the Empty Quarter desert near the border with the United Arab Emirates, produces extra light grade crude with API gravity of 42 degrees, they said.
The number of rigs drilling for oil in the U.S. has fallen for a fifth straight week to 343, Baker Hughes Inc. data show. That helped prices on April 22, according to Exane BNP Paribas. Exane still remains “cautious on prices,” it said, citing the persistent oversupply and expectations for increased hedging with crude above $45. Producers typically hedge more when prices recover.

Source: Bloomberg