Oil set for biggest monthly loss this year even as supplies fall

[MELBOURNE] Oil is heading for its biggest monthly drop this year as a surprise drop in US crude stockpiles failed to allay concerns the global market remains oversupplied.

Futures were little changed in New York after rising 1.7 per cent on Wednesday. Inventories decreased by 4.2 million barrels through July 24 to 459.7 million, the lowest since March, Energy Department data showed, compared with a forecast in a Bloomberg survey for supplies to increase by 850,000 barrels. US production fell the most since October 2013 to the lowest level in more than two months.

Oil is heading for the biggest monthly loss since December after tumbling into a bear market as leading members of Opec pump record volumes while a plunge in Chinese stocks fanned concerns the country's fuel demand may falter. Royal Dutch Shell Plc said it's preparing for a "prolonged downturn" by cutting thousands of jobs.

"It's too early to conclude from the Energy Department numbers that we are at a turning point," Jens Pedersen, a Copenhagen-based commodities analyst at Danske Bank A/S, said by e-mail. "A pick-up in global economic growth is needed for the rebalancing to take place."

West Texas Intermediate for September delivery was at US$48.77 a barrel in electronic trading on the New York Mercantile Exchange, down 2 cents, at 9:07 am London time. The contract gained 81 cents to US$48.79 on Wednesday. The volume of all futures traded was 39 per cent below the 100-day average. Prices have lost more than 20 per cent from their closing peak this year on June 10.

Brent for September settlement was 30 cents higher at US$53.68 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of US$4.88 to WTI.

Shell plans to cut 6,500 jobs this year and reduce capital investment by US$7 billion, according to a statement Thursday from the company, based in The Hague. Second-quarter profit adjusted for one-time items and inventory changes dropped to US$3.8 billion from US$6.1 billion a year earlier, it said.

US crude output dropped by 145,000 barrels a day to 9.41 million a day last week, the Energy Information Administration said Wednesday. That's the lowest level since the week ended May 15 when production averaged 9.26 million a day. US crude inventories are almost 100 million barrels above the five-year average.

Stockpiles at Cushing, Oklahoma, the delivery point for WTI futures and the biggest oil-storage hub in the US, fell by 212,000 barrels to 57.7 million, the EIA said. It was the first inventory decline in five weeks.

Supplies from outside the Organization of Petroleum Exporting Countries are holding up against collapsing prices, signaling crude has further to fall before global markets rebalance, according to Citigroup Inc. Production from Brazil, Russia, Canada and the North Sea have gained this year even after Brent slid to a six-year low in January, the bank said.

BLOOMBERG