Oil falls for third day on concern rally will sustain surplus

[LONDON/NEW YORK] Oil fell for a third day in New York, its longest losing streak since March, amid concern the market's rebound to US$60 a barrel will encourage production and sustain a global supply glut.

Opec and U.S. shale explorers are set to expand output later this year, preventing further price gains, said Pierre Andurand, a hedge fund manager.

Oil's rally from a six-year low is stalling as US output remains near a record even as the number of rigs drilling for oil in the nation shrinks. Gulf members of the Organization of Petroleum Exporting Countries are boosting supplies as they escalate a battle to defend market share, the International Energy Agency said. The price recovery threatens to prolong the surplus, according to Goldman Sachs Group Inc.

"With crude prices over US$60, it invites producers back into production," said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. "Production will recover. The trend that will emerge in the near term will likely be downward."

West Texas Intermediate for June delivery declined 63 cents, or 1.1 per cent, to US$59.25 a barrel at 1:12 pm on the New York Mercantile Exchange. The volume of all futures was 28 per cent below the 100-day average.

Brent for July settlement slipped 12 cents to $66.58 a barrel on the London-based ICE Futures Europe exchange. Front- month futures have gained 2 per cent this week. The European benchmark crude traded at a premium of US$6.40 to WTI for the same month.

The number of US oil drilling rigs fell 8 this week to 660, the lowest level since 2010, according to Baker Hughes Inc.

Oil prices will remain "relatively low" for the next two years as a rebound in recent months allows US companies to revive output, according to Mr Andurand, who generated a 38 per cent return in 2014 from wagering that oil would fall. Opec members including Saudi Arabia, the United Arab Emirates and Kuwait are raising their production, he said in a Bloomberg Television interview on Thursday in New York.

While the US shale oil industry appears to have "blinked" in the face of Opec's resistance to cutting supply, producers including Russia are coping better than expected with low prices, the IEA said in its monthly report on May 13.

Opec, whose 12 members pump about 40 per cent of the world's crude, decided in November to maintain its output target of 30 million barrels a day. The group is scheduled to meet again on June 5 in Vienna.

In the US, the world's biggest consumer, stockpiles are more than 100 million barrels above the five-year seasonal average, government data show.

Sixteen of 26 analysts and traders, or 62 per cent, were bearish on WTI, while six were bullish, a Bloomberg survey showed Thursday.

BLOOMBERG