Oil Falls Amid Doubts OPEC Curbs Will Counter Shale Production

(Bloomberg) -- Oil fell amid doubts that prolonged cuts by OPEC and its allies will succeed in clearing a surplus while U.S. output remains so resilient.

Futures pared losses after falling as much as 3.9 percent. While Saudi Arabia's Energy Minister Khalid Al-Falih said the cuts are working and predicted global inventories will fall to the five-year average in early 2018, American drillers continue to add rigs to shale fields. American supplies fell 8.67 million barrels last week, the American Petroleum Institute was said to report.

The market's initial reaction to increased output from Libya was tempered as OPEC and Russia affirmed the goal of tackling the global glut, said John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy.

“Competing commentary from the Saudis and Russia" on "keeping up the good work" offset the response, he said. “At some point, the verbal interventions do work."

Even with U.S. crude stockpiles forecast to show declines for an eighth week, West Texas Intermediate for July delivery settled at $48.32 a barrel on the New York Mercantile Exchange, down $1.34. The contract lost 14 cents to $49.66 on Tuesday. WTI traded at $48.79 at 4:40 p.m. after the API report was released.

Brent for July settlement, which expired Wednesday, dropped $1.53, or 2.6 percent, to $50.31 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.16 to WTI.

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The deal is coming across as ineffective to investors as more barrels enter the market from the U.S. and Libya, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

“There doesn't seem to be an end to supply out there,” Yawger said in a telephone interview. “And demand is not exactly rip-roaring."

By the end of the year, U.S. output is seen reaching a record 10 million barrels a day, according to consulting and data firm Rystad Energy AS. Production with oil at $50 a barrel has grown faster "than any analysts in the market predicted," said ­Bjornar Tonhaugen, vice president for oil markets, in a report Wednesday.

U.S. crude stockpiles probably fell by 3 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Thursday. American drillers last week boosted the number of active rigs to 722, the most since April 2015, according to data from Baker Hughes Inc.

Oil-market news:

• Oil demand will continue to grow in coming decades even as nations around the world restrict greenhouse-gas emissions to counter climate change, said Exxon Mobil Corp. CEO Darren Woods.
• Saudi Arabian Oil Co., known as Saudi Aramco, may raise the Arab Light crude differential by 30 cents a barrel for July sales to Asian customers, according to a Bloomberg survey.
• OPEC oil exports rise despite compliance with output cuts.

--With assistance from Sharon Cho and Ben Sharples

To contact the reporter on this story: Meenal Vamburkar in New York at mvamburkar@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Jim Efstathiou Jr., Debarati Roy