Oil slides to three-week low amid plentiful U.S. stockpiles

By Mark Shenk, Grant Smith on 9/1/2016

NEW YORK (Bloomberg) -- Oil tumbled to the lowest in almost three weeks after U.S. government data showed crude supplies at the highest seasonal level in more than 20 years.

Futures fell as much as 3% in New York after dropping 6.2% the previous three sessions. Supplies rose by 2.28 MMbbl last week, according to the Energy Information Administration. Russian Energy Minister Alexander Novak said he sees no need for oil-producing nations to impose an output cap given current price levels. The comments come before OPEC members and other oil producers meet in Algiers later this month.

"Inventories are rising and excess supply will grow," said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. "We’re not going to be comfortable pushing prices above $50 with only North America reducing output while the rest of the world is running all out."

Oil rose 7.5% in August amid speculation that the Sept. 26-28 talks may lead to an agreement to manage the market. A cap on production would be positive, Saudi Arabia’s Energy Minister Khalid Al-Falih said in an interview last week, while ruling out an output cut. A freeze deal between members of the Organization of Petroleum Exporting Countries and other producers was proposed in February but a meeting in April ended with no final accord.

West Texas Intermediate for October delivery declined $1.33 to $43.37/bbl at 12:12 p.m. on the New York Mercantile Exchange. Futures touched $43.35, the lowest since Aug. 12. The contract dropped 3.6% to $44.70 on Wednesday, the biggest decline since Aug. 1. Total volume traded was 12% above the 100-day average.

U.S. Stockpiles

Brent for November settlement slid $1.26, or 2.7%, to $45.63/bbl on the London-based ICE Futures Europe exchange. The October Brent contract fell 2.8% to expire at $47.04 on Wednesday.

U.S. crude stockpiles rose to 525.9 MMbbl through Aug. 26, the EIA reported Wednesday. Imports increased 275,000 bopd to 8.92 MMbopd last week, the highest since September 2012, while production slipped 60,000 bopd to 8.49 MMbopd. Supplies at Cushing, Oklahoma, the delivery point for WTI futures and the nation’s biggest storage hub, fell to 63.9 MMbopd.

Failed Proposal

An initiative between OPEC countries and non-members such as Russia to limit output failed in April. That proposal failed after Iran declined to attend the meeting in Doha and Saudi Arabia refused to proceed with the deal without the participation of its Persian Gulf rival.

Iranian Oil Minister Bijan Namdar Zanganeh said that the country expects to recover its market share—eroded during years of international sanctions—as a condition of co-operating with OPEC, according to an Aug. 26 report by news service Shana.

Saudi Arabia won’t boost output to capacity and flood the market, Al-Falih said in an interview with Al-Arabiya television. The kingdom isn’t concerned about global demand in spite of a drop in prices and a slower economy, he said.

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