Oil Pares Losses as Market Looks to Potential Stockpile Drop

Oil pared losses in New York as concerns about growth in U.S. shale production were abated by the prospect of declining crude inventories.

Futures ended the session little changed after declining as much as 1.2 percent. While production at shale fields is forecast to hit a record in September, a government report may show that crude inventories declined for a seventh week, according to a Bloomberg survey. The industry-funded American Petroleum Institute will release its inventory data later on Tuesday.

“People are squaring up in anticipation of those figures,” Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by telephone. Yawger expects a crude draw of at least 4 million barrels.

Oil in New York has been unable to hold a rally above $50 a barrel this month as investors’ concerns about rising supplies outweigh cuts by the Organization of Petroleum Exporting Countries and its allies. The gain in U.S. shale output next month is being led by the oil-rich Permian Basin of Texas and New Mexico. Citigroup Inc.’s Ed Morse says U.S. shale will prevail over OPEC as the two rivals compete.

“With producers unwilling for the time being to contemplate deeper supply cuts, we’re stuck in the same situation. How do you actually rebalance the market if the efforts you are making are not sufficient in light of what’s happening elsewhere?” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone.

West Texas Intermediate for September delivery declined 4 cents to settle at $47.55 a barrel on the New York Mercantile Exchange, the lowest level in three weeks. Total volume traded was about 17 percent above the 100-day average.

Brent for October settlement rose 7 cents to end the session at $50.80 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $3.10 to October WTI.

U.S. crude inventories probably shrunk by 3.4 million barrels last week, according to the Bloomberg survey before an EIA report on Wednesday. Gasoline inventories dropped 450,000 barrels, the survey showed. Yet, crude supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, rose 700,000 barrels last week, according to a Bloomberg-compiled forecast.

“If we continue with declines in crude inventories and gasoline inventories, then I’d think we’d have some stabilization in the price of oil,” Mark Watkins, a Park City, Utah-based regional investment manager at U.S. Bank Wealth Management, said by telephone.

Oil-market news:

  • Libya’s biggest oil field, Sharara, is increasing production and the Zueitina port is again allowing tankers to load, paving the way for the OPEC nation’s crude output to rebound.
  • Investors are worrying over the potential fallout when OPEC’s deal to cut output expires, with uncertainty about the return of supplies in 2018 clouding the outlook for crude, according to BMI Research.

— With assistance by Ben Sharples, Abigail Morris, and Nico Grant

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