Oil Steady Amid Record Saudi Production, U.S. Stockpile Gain

(Bloomberg) -- Oil traded little changed as weekly U.S. industry data showed crude stockpiles expanded and Saudi Arabia raised production to a record in July.

Futures recouped an earlier decline of 1.6 percent in New York. U.S. inventories rose by 2.09 million barrels last week, the American Petroleum Institute was said to report. Government data Wednesday is forecast to show stockpiles slid by 1.5 million barrels. Saudi Arabia pumped 10.67 million barrels a day in July to satisfy the summer surge in domestic demand, according to a monthly report from the Organization of Petroleum Exporting Countries.

Oil has fluctuated after tumbling more than 20 percent into a bear market and closing below $40 a barrel last week for the first time in almost four months. While there is an inventory overhang of U.S. crude and fuel stockpiles, Goldman Sachs Group Inc. forecasts the market will be in modest deficit in the second half of this year and the EIA sees consumption outpacing supply in 2017.

“The Saudi news and last night's API numbers were negative for crude,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “It shows that OPEC producers continue with their volume-maximizing strategy, as long as they can pump more. Any coordinated action between OPEC and non-OPEC remains very unlikely.”

West Texas Intermediate for September delivery slid as much as 69 cents to $42.08 a barrel on the New York Mercantile Exchange and was at $42.56 at 1:39 p.m. London time. The contract lost 25 cents to $42.77 on Tuesday. Total volume traded was about 11 percent below the 100-day average.

U.S. Stockpiles

Brent for October settlement was 9 cents lower at $44.89 a barrel on the London-based ICE Futures Europe exchange. The contract fell 0.9 percent to $44.98 on Tuesday. The global benchmark crude traded at a premium of $1.57 to WTI for October.

Weakness in global oil markets, which has dragged prices to a three-month low, may persist as demand slows seasonally and fuel inventories remain abundant, OPEC predicted. There are “lingering concerns” that U.S. and European refiners may reduce processing rates as profits fade, it said. Gasoline consumption will taper off in the U.S. with the end of the summer-vacation driving season, according to OPEC.

For a story on Iranian oil market share in India, click here.

U.S. gasoline stockpiles dropped by 3.95 million barrels last week, the API said Tuesday, according to a person familiar with the figures. The EIA report Wednesday is forecast to show inventories of the motor fuel decreased by 1.3 million barrels, according to the median estimate in a Bloomberg survey.

Power demand in the Middle East peaks in the hottest months of July and August, when Saudis turn up their air-conditioners to cool homes and offices. Saudi output previously peaked at 10.56 million barrels a day in June 2015, according to OPEC data.

Oil-market news:

• The EIA forecasts 2017 U.S. output averaging 8.31 million barrels a day in 2017, up from a July estimate of 8.2 million, according to its monthly report released Tuesday.
• Saudi Arabia kept its full contractual crude supplies to Asia for September, according to three officials at the region's refiners.
• Iran is producing 3.85 million barrels of oil a day, and output is set to rise to 4.6 million barrels a day in five years, the Fars news agency said, citing comments Oil Minister Bijan Namdar Zanganeh made in parliament.

--With assistance from Stephen Stapczynski and Ben Sharples To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Alex Devine