Oil falls after hitting 2015 highs, markets still well supplied
SINGAPORE – Oil prices fell on Thursday after hitting 2015 highs in the previous session as an OPEC delegate indicated the group would stick to its strategy of pursuing market share rather than cutting output and traders took profit from a multi-week rally.
Stronger-than-expected demand growth and a slowdown in crude supply has lifted oil prices around 50 percent from a six-year low hit in January. Yet many traders and analysts say global crude markets remained well supplied.
The rally in futures prices indicates a deep disconnect with the physical market, some traders said, with tens of millions of West African, Azeri and North Sea barrels struggling to find buyers.
The first drawdown in US crude inventories since January as well as a weakening dollar helped to feed the rally in oil on Wednesday, before prices started dropping back. U.S. crude stocks fell 3.9 million barrels last week, the first drop in four months, the Energy Information Administration said.
“While the latest draw and the recent slowdown in weekly builds in crude stocks have been seen as positive for the oil price, crude stocks remain exceedingly high,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas.
The draw was due in part to a large weekly drop in crude imports, Tchilinguirian noted. “It is unlikely that a trend in crude stock declines will take hold just yet.”
Brent crude was trading 31 cents lower at $67.46 per barrel at 0531 GMT. It rallied to a 2015 peak of $69.63 on Wednesday before closing below $68 a barrel.
U.S. crude was down 34 cents at $60.59 a barrel. The contract had rallied more than $2 to a high of $62.58 in the previous session on news of falling crude stocks, before settling near $61.
Dubai swaps, the price marker for Middle East and Russian crude sold to Asia, flipped into backwardation on Wednesday for the first time in months, potentially triggering a release of oil from storage tanks.
In a backwardated market, the price of prompt-loading crude is higher than prices in the future, while the reverse holds true for a contango market. Both Brent and U.S. crude benchmarks remain in contango amid a global oversupply.
Comments by a senior OPEC delegate overnight also indicate that core Gulf oil producers are not wavering in their strategy to focus on market share rather than cutting output alone, suggesting big policy changes are unlikely at the June meeting unless non-OPEC producers change their stance. – Reuters