Oil closes at lowest since November, as U.S. supply seen rising

By Mark Shenk on 3/22/2017

NEW YORK (Bloomberg) -- Oil closed at the lowest level since November, erasing the gains that followed OPEC’s deal to cut output, as U.S. crude supplies are forecast to climb.

Futures dropped 1.8% in New York, erasing an early gain, while the S&P 500 Index fell the most in five months, as investors assessed the prospects for Donald Trump’s pro-growth policies gaining congressional approval. The industry-funded American Petroleum Institute was said to have reported that U.S. supplies rose last week. Government data Wednesday will probably show stockpiles climbed to a record, a Bloomberg survey showed. Prices increased earlier amid speculation OPEC may extend its supply-cut deal past June.

“There’s a generalized selloff here,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “Oil has been tracking the S&P 500 pretty closely, and of course has its own issues. General expectations about what Donald Trump would do for growth helped both oil and stocks. Those are fading fast.” 

Oil dipped below $50/bbl this month for the first time in 2017 as record U.S. stockpiles and rising output weighed on the reductions by OPEC and its allies. While the  Organization of Petroleum Exporting Countries won’t decide until May whether to prolong the cuts, ministers and officials from outside the group, including Russia’s Alexander Novak, will meet this weekend in Kuwait to discuss the deal’s progress.

West Texas Intermediate for April delivery, which expired Tuesday, dropped 88 cents to $47.34/bbl on the New York Mercantile Exchange. It was the lowest close since Nov. 29. The more actively traded May contract slipped 67 cents to $48.24. May futures traded at $48.14 at 4:39 p.m. after the API report.

Brent for May settlement declined 66 cents to $50.96/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude settled at a $2.72 premium to May WTI.

Trump agenda

Trump met with House Republicans Tuesday morning in Washington to rally support for the repeal of Obamacare as investors look for signs that his plans to cut corporate taxes and boost spending will move forward. House Republicans warned that a failure to pass a health-care bill could imperil tax and spending reform.

“The catalyst is concern over demand due to potential difficulties with President Trump getting his pro-growth agenda through,” Bart Melek, the head of global commodity strategy at TD Securities in Toronto, said by phone.

U.S. crude inventories eased off the highest level in more than three decades in the week ended March 10, dipping to 528.2 MMbbl, according to the Energy Information Administration. Analysts surveyed by Bloomberg forecast a 3-MMbbl increase for the week ended March 17, which would take supplies to a new high. 

Nationwide crude stockpiles rose 4.53 MMbbl last week, the API said, according to people familiar with the data. Supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, rose 1.97 MMbbl. If the EIA reports a Cushing gain of the same size it would leave stockpiles at a record high.

Technical resistance

WTI is nearing key technical resistance levels, according to data compiled by Bloomberg. The 50% Fibonacci retracement from the August low of $39.19 to the January high of $55.24 stands at $47.22. The 38% retracement of rally is $45.32. Investors typically sell contracts when prices dropped below technical support.

“This is a do-or-die time for the oil bulls,”  Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania, said by telephone. “Prices have to hold in the $47.22-to-$45.32 range or there will be a flush back to $40, and even lower.”

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