Oil Slides as Industry Is Said to Report Unexpected Crude Build

(Bloomberg) -- Oil extended its slide below $50 a barrel after an industry report was said to show U.S. crude inventories unexpectedly jumped.

Crude stockpiles climbed by 1.78 million barrels last week in an American Petroleum Institute report released Tuesday, according to people familiar with the data. That would be the first crude build since the end of June when compared with Energy Information Administration data. Yet, a Bloomberg survey showed nationwide crude inventories probably fell last week. The EIA will release its inventory data Wednesday.

“Any build in inventories at this point is negative for the market because this is the time of year when inventories drop naturally anyway,” James Williams, an economist at London, Arkansas-based energy-research firm WTRG Economics, said by telephone.

Oil settled above $50 for the first time since May on Monday. While the Organization of Petroleum Exporting Countries and its allies work to rebalance the market and trim global inventories, doubts remain that supplies will increase from elsewhere, with the U.S. oil rig count at the highest level since April 2015.

West Texas Intermediate for September delivery was at $48.68 a barrel at 4:50 p.m. on the New York Mercantile Exchange in aftermarket trading. Prices closed at $49.16 a barrel Tuesday. Total volume traded was about 41 percent above the 100-day average.

Race to Rebalance

Brent for October settlement dropped 94 cents to end the session at $51.78 a barrel on the London-based ICE Futures Europe exchange, and traded at a $2.49 premium to WTI for the same month. The September contract expired Monday.

“This race to rebalance supply and demand--it's a marathon and lot of people are entering it thinking it's just a quick sprint,” Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management, which oversees $142 billion in assets, said by telephone. “But, this rebalancing is going to take a lot longer than a month, or six months or even a year.”

OPEC's crude output rose 210,000 barrels a day in July to 32.87 million, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data.

Libya -- which along with Nigeria is exempt from OPEC's cuts as it seeks to restore output lost to internal strife -- added 180,000 barrels a day. Saudi Arabia increased output by 30,000 barrels a day to 10.05 million.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, climbed as much as 0.2 percent. A stronger U.S. currency reduces the appeal of dollar-denominated raw materials as an investment.

U.S. Inventories

Cushing inventories rose by 2.56 million barrels and gasoline supplies fell by 4.83 million barrels last week, according to the API. A 2.56-million-barrel Cushing crude build would the largest since December when compared with EIA.

U.S. crude inventories probably dropped by 3.1 million barrels last week, according to the median estimate in a Bloomberg survey. Gasoline supplies are seen declining 1 million barrels. Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, probably dropped by 700,000 barrels last week, according to a forecast compiled by Bloomberg.

The $50-level is “a psychological level. People are really beginning to realize that the market probably needs a steady beat of bullish information to continue to rally,” Gene McGillian, market research manager at Tradition Energy in Stamford, Connecticut, said by telephone. “If we don't get a really positive inventory report this week, the market is vulnerable to a nice little turnaround” after rallying the last couple of weeks, he said.

Oil-market news:

• Royal Dutch Shell Plc's Pernis refinery in the Netherlands cannot restart until its power station is repaired, according to a company statement. Shell expects to get units back online in the second half of August at the earliest.
• A U.S. ban on Venezuelan trade would lead to a reshuffling of oil flows with likely limited impact on prices, according to Goldman Sachs Group Inc.
• Investors pulled $845.7 million in July from the U.S. Oil Fund, the biggest exchange-traded fund tracking oil prices, data compiled by Bloomberg shows. That's the largest monthly withdrawal since March 2009.

--With assistance from Ben Sharples Rakteem Katakey Paul Burkhardt and Nico Grant

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Susan Warren, Carlos Caminada