Oil trades near $50 as supply expansion in U.S. seen slowing
HEESU LEE
SEOUL, South Korea (Bloomberg) -- Oil traded near $50/bbl after the U.S. government forecast that the nation’s supply growth will slow next month, prompting speculation a global glut will ease.
Futures were little changed in New York after halting two days of losses on Monday. Production from shale oil will expand at the slowest pace in more than four years in April, the Energy Information Administration said. For last week, U.S. crude inventories are projected to have increased further from a record high, according to a Bloomberg News survey before a separate report on Wednesday.
Oil is retracing losses after a bear market in 2014 amid speculation that the global surplus will start to deplete as the year progresses. Since the start of December, drillers in the U.S. have reduced the number of active rigs seeking oil by 41% to 922, the fewest since April 2011, Baker Hughes Inc. data showed.
“The market is expecting production to shrink and prices to rebound,” said Kang Yoo Jin, a commodities analyst at NH Investment & Securities Co. in Seoul. “The stockpiles and production data we’re getting are at record highs and this gap between what the market expects and the data we’re actually getting makes prices move without a clear direction.”
West Texas Intermediate crude for April delivery was at $49.93/bbl in electronic trading on the New York Mercantile Exchange, down 7 cents, at 3:45 p.m. Singapore time. The contract rose 39 cents to $50 on Monday. The volume of all futures traded was about 53% below the 100-day average. Prices have decreased 6.3% this year.
Shale Plays
Brent for April settlement was 29 cents lower at $58.24/bbl on the London-based ICE Futures Europe exchange. It slid $1.20 to $58.53 on Monday, the lowest close since Feb. 12. The European benchmark crude traded at a premium of $8.27 to WTI, compared with $8.53 on Monday.
Production from six major U.S. shale plays will average 5.6 MMbopd in April, the EIA, the Energy Department’s statistical arm, said in its monthly Drilling Productivity Report on Mar. 09. That’s up 298 from March, the smallest projected gain since February 2011.
The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Permian and Eagle Ford in Texas and the Bakken in North Dakota.
Crude inventories probably expanded by 4.75 MMbbl through March 6, according to the median estimate in the Bloomberg survey of eight analysts. Supplies previously climbed to 444.4 million, the highest level in weekly EIA records dating back to August 1982.
Bets on WTI falling below $35/bbl by June have lost almost 80% of their value as futures recovered from a six-year low. June $30 and $35 puts, or wagers that prices will drop below those levels, have declined since January. Prices traded within an $8 range last month, the least since September.
