Oil slides before U.S. data as IEA warns of price ceiling

By Ben Sharples and Grant Smith on 10/12/2017

HONG KONG and LONDON (Bloomberg) -- Oil slid as investors waited to see whether U.S. government data will confirm that crude stockpiles rose last week, while the International Energy Agency warned of a ceiling for prices next year.

Futures lost 1.7% in New York after climbing 4.1% the previous three sessions. Inventories rose by 3.1 MMbbl last week, the American Petroleum Institute was said to report. That contrasts with a Bloomberg survey that showed stockpiles dropped for a third week. The government is due to release the official data later Thursday. Meanwhile the IEA said global supply and demand estimates for 2018 indicate that stockpiles may not fall further, potentially capping prices.

Oil rose the past three days -- after the biggest weekly loss since May -- on speculation that output curbs led by members of the Organization of Petroleum Exporting Countries are gradually offsetting rising global production. Nevertheless, crude supply continues to exceed demand and markets aren’t re-balancing yet, according to IEA Executive Director Fatih Birol.

“According to the IEA’s calculation, at the current level of OPEC production there will be no global stock draws next year,” said Olivier Jakob, managing director of consultants Petromatrix GmbH in Zug, Switzerland. “If the IEA is right, then markets will continue to trade in the narrow” price band seen recently.

West Texas Intermediate for November delivery was at $50.41/bbl on the New York Mercantile Exchange, down 89 cents, at 9:09 a.m. local time. Total volume traded was about 27% below the 100-day average. Prices gained 38 cents to $51.30 on Wednesday, the highest in more than a week.

Brent for December settlement declined 72 cents to $56.22/bbl on the London-based ICE Futures Europe exchange, after advancing 33 cents on Wednesday. The global benchmark crude traded at a premium of $5.48 to December WTI.

Global oil stockpiles will fall this year by 300,000 bpd as stronger demand and output curbs by OPEC and Russia whittle away a surplus, the IEA said Thursday in its monthly report. Still, even if the producers decide to continue with the cuts next year, surging supplies from the U.S. and elsewhere will prevent inventories dropping further.

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