Oil declines as supply concerns loom with summer season ending

[NEW YORK] Oil slid on concerns that supplies may rise once the summer driving season ends, with traders shrugging off an industry report showing US stockpiles declined.

Crude inventories dropped by 7.84 million barrels last week in an American Petroleum Institute report released Tuesday, people familiar with the data said. That would be the largest draw since September if Energy Information Administration data confirm it Wednesday. However, stockpile declines are common during this time of year. The EIA Tuesday raised US oil output forecasts while cutting price estimates for this year.

There are only about "five more weeks of draws and then inventories start to rise again. You're coming rapidly to the end of the draw season for crude," Bill O'Grady, chief market strategist at Confluence Investment Management in St Louis, said by telephone.

Oil in New York climbed above US$50 a barrel early last week, but then swiftly retreated below that key level as signs of elevated global supplies stoked concerns that output-cuts by the Organization of Petroleum Exporting Countries and its partners aren't helping to rebalance the market as expected.

That comes amid rising output from producers such as Libya, Nigeria and the US and lower compliance by some nations to the output-reduction deal.

West Texas Intermediate for September delivery traded at US$48.96 a barrel at 5:20pm on the New York Mercantile Exchange after settling at US$49.17. Total volume traded was about 16 per cent above the 100-day average.

Brent for October settlement declined 23 US cents to end the session at US$52.14 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of US$2.79 to October WTI.

Countries "all expressed their full support for the existing monitoring mechanism," Opec said in a statement Tuesday after a committee meeting in Abu Dhabi. Compliance with the output-reduction deal was 86 per cent in July, according to a recent Bloomberg survey.

US Output US crude output will average 9.35 million barrels a day this year, rising from a previous forecast of 9.33 million and is seen at 9.91 million barrels a day in 2018, according to the EIA's Short-Term Energy Outlook. The agency cut its WTI price forecast for this year to US$48.88 a barrel from US$48.95, and reduced its Brent forecast to US$50.71 from US$50.79.

Gasoline supplies rose by 1.53 million barrels last week, and inventories at Cushing, Oklahoma, the delivery point for WTI, increased by 319,000 barrels, the API was said to report. Nationwide crude stockpiles probably decreased by 2.2 million barrels, according to a Bloomberg survey before the release of EIA data. Gasoline inventories slid by 1.5 million barrels, the survey showed.

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest US oil-storage hub, probably increased by 200,000 barrels last week, according to a forecast compiled by Bloomberg.

"We're in the last big month of the driving season and the question is, can Opec balance the lower fall and winter demand?" James Williams, an economist at London, Arkansas-based energy-research firm WTRG Economics, said by telephone.

"There just isn't enough confidence in Opec yet to get us above US$50. That's the big problem."

BLOOMBERG