Oil Closes Near Six-Week Low as Supply Falls Less Than Expected

(Bloomberg) -- Crude closed near a six-week low in New York after U.S. inventories declined by less than analysts projected.

Crude stockpiles fell 930,000 barrels to 527.8 million, the Energy Information Administration reported Wednesday -- less than a third of the 3 million-barrel decline forecast by analysts surveyed by Bloomberg. Production advanced to 9.29 million barrels a day last week, the highest since August 2015. Gasoline inventories increased as demand falters. Prices had risen as much as 1.2 percent in New York before the report was released.

Oil has fallen the past two weeks on concern that increasing U.S. output will offset efforts by the Organization of Petroleum Exporting Countries and its allies to eliminate a global glut. OPEC will meet again May 25 in Vienna to decide whether to extend the cuts through the second half of the year. Russia believes in prolonging the curbs, a Russian government official said.

"Crude inventories fell, because they always do at this time of year," Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania, said by telephone. "This is the 11th straight-weekly gain in production and heading for a modern-day record by the end of the year. I don't see any way you can spin this as bullish."

West Texas Intermediate for June delivery rose 16 cents to close at $47.82 a barrel on the New York Mercantile Exchange. Futures tumbled 2.4 percent to $47.66 on Tuesday, the lowest close since March 21. Total volume traded was about 4 percent above the 100-day average.

Brent for July settlement increased 33 cents, or 0.7 percent, to $50.79 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.61 premium to July WTI.

Above Average

U.S. supplies of crude are still near records and more than 100 million barrels higher than the five-year average for this time of the year, data compiled from the EIA show. Crude production climbed for an 11th week, capping the longest stretch of gains since 2012.

"U.S. production continues to rise largely in response to supply discipline being shown by OPEC and Russia," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by telephone. "It was a mistake during the first part of the year to ignore rising U.S. production and focus exclusively on the OPEC cuts. It's a mistake now to just focus on U.S., production and assume that guarantees we'll have an ongoing abundance of supply."

Russia considers it sensible to extend the existing deal for at least six months given current market dynamics, according to a government official with knowledge of the matter. Russia exceeded its target of cutting production by 300,000 barrels a day from October levels by 790 barrels a day on May 1, said the official who asked not to be identified as the information isn't public.

OPEC deepened production cuts last month, with overall output dropping by 40,000 barrels a day, according to a Bloomberg News survey. Compliance among 10 OPEC members bound by the reduction deal strengthened to 102 percent from 89 percent in March, according to the survey of analysts, oil companies and ship-tracking data.

"I see the market continuing to rebalance," Joe Bozoyan, an equity portfolio manager who helps oversee $5 billion in energy and utility shares at John Hancock in Boston, said by telephone. "There's still a strong potential for an extension of the OPEC cuts, and Russia appears to agree."

Oil-market news:

• Saudi Arabia will retain full ownership of its oil and gas reserves and sole decision-making authority on production levels after Saudi Arabian Oil Co.'s long-awaited initial public offering, according to Deputy Crown Prince Mohammed bin Salman.
• The turnaround at Petroleos Mexicanos appears to be bearing fruit, propelling the oil producer to its first profit since 2012.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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