Oil slips its hold on $50 as OPEC output climbs to 3-year high

Oil breached US$50 a barrel in New York for a third day before retreating after OPEC reported that its members pumped the most crude in three years.

The Organization of Petroleum Exporting Countries produced 31.57 million barrels a day last month, the most since 2012, according to its monthly market report. The market may be “balanced” in 2016 as demand grows and non-OPEC supply contracts, OPEC Secretary General Abdalla Salem El-Badri, said at a conference in Kuwait City on Monday.

West Texas Intermediate rose above US$50 a barrel on Oct. 8 for the first time since July, yet failed to settle above that mark as worries about oversupplies persisted. U.S. oil explorers idled rigs for a sixth week as they struggle with low prices, data from Baker Hughes Inc. showed on Friday. That may whittle away U.S. inventories, which remain about 100 million barrels above the five-year average.

“Traders are seizing on the monthly OPEC report today,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “OPEC pumping at the highest level in three years is a very bearish element. The decline in U.S. production is a drop in the bucket compared with the OPEC increase.”

WTI for November delivery declined 89 cents US, or 1.8 per cent, to $48.74 a barrel at 10:21 a.m. on the New York Mercantile Exchange. The contract climbed as much as 1 per cent to US$50.13 earlier. The volume of all futures traded was down 5.3 per cent from the 100-day average.

Balanced Market

Brent for November settlement dropped 76 cents US, or 1.4 per cent, to US$51.89 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude was at a US$3.15 premium to WTI.

OPEC sees production outside the group shrinking by 130,000 barrels a day next year as the U.S. shale boom collapses. The group forecasts demand for its crude in 2016 to be 30.8 million barrels a day, revising its demand outlook upward by half a million barrels.

“At OPEC, we are hopeful that the industry will see a more balanced oil market in 2016,” El-Badri said. “We have recently seen a contraction in production from some non-OPEC producers and an uptick in demand growth.”

The gap in oil supply and demand is due to close in the third quarter of 2016, Mohammad Ghazi Al-Mutairi, chief executive officer of state-run Kuwait National Petroleum Co., said at the Kuwait conference. Prices have bottomed and there are signs of a recovery in 2016, according to Qatar’s Energy Minister Mohammed Al Sada.

U.S. crude stockpiles rose 3.07 million barrels to 461 million in the week ended Oct. 2, according to the Energy Information Administration. Production increased 76,000 barrels a day to 9.17 million during the period.

“The market fundamentals still look dreadful,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “There’s still an awful lot of crude in storage, and we’re still pumping over 9 million barrels a day of crude.”

Bloomberg News

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