Oil trades below $50 as market pessimism on OPEC deal lingers

Bloomberg

Oil traded below $50 a barrel after OPEC underwhelmed investors with its production-cut extension deal. Futures fell 0.2 percent in New York. Prices closed 1.1 percent lower last week after OPEC agreed to extend limits on crude output through the first quarter of 2018. Saudi Arabia’s Energy Minister Khalid Al-Falih said the oil-cuts strategy is working and that global stockpiles will drop faster in the third quarter. US explorers added two rigs last week to 722, the highest level since April 2015, Baker Hughes Inc. said.
“It’s huge inventories around the globe that are really keeping a lid on prices, combined with the ability of those agile US producers who scramble back into action should the oil price rise,” Michael McCarthy, chief market strategist at CMC Markets in Sydney, said by phone. Oil in New York clawed back from its tumble toward $45 in the run-up to the meeting in Vienna as Saudi Arabia and Russia rallied support for the deal. Meanwhile, US inventories dropped seven weeks in a row, though they still remain above the five-year average and production rose to the highest since August 2015.
West Texas Intermediate for July delivery traded at $49.72 a barrel on the New York Mercantile Exchange, down 8 cents, at 12:13 p.m. in Dubai. Total volume traded was about 39 percent below the 100-day average. Prices rose 90 cents to close at $49.80 on Friday.
Brent for July settlement was 7 cents lower at $52.08 a barrel on the London-based ICE Futures Europe exchange. The contract gained 69 cents, or 1.3 percent, to settle at $52.15 on Friday. The global benchmark crude traded at a premium of $2.39 to WTI.
“We will see oil production tightening from the third quarter and it’s highly likely that prices will rebound,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc., said by phone in Seoul. “What’s concerning is what happens after the nine-month agreement because there isn’t an exit plan, while US producers will probably boost output at least until the second half of this year.”
Rigs targeting crude in the US increased for a 19th straight week in the longest streak of gains since August 2011, according to Baker Hughes data. While number of working rigs has more than doubled from last year’s low of 316, it was the smallest increase this year. Drillers in D-J/Niobrara Basin in Colorado led growth last week, adding 4 for a total of 27 oil rigs in the region.
The market overreacted to OPEC’s decision to extend the production curbs, and the global crude market is heading towards balance in the second half of this year, Japan’s Cosmo Oil Co. said in an emailed response to questions. Hedge funds’ WTI net-long positions — the difference between bets on a price increase and wagers on a drop — rose 20 percent in the week ended May 23, according to the CFTC data on futures and options.