Oil pares biggest quarterly gain since 2009 amid rebalancing

NEW YORK (Bloomberg) -- Oil headed for the biggest quarterly advance in seven years as falling U.S. supply added to speculation the global surplus is easing.

 

Futures fell as much as 2.8% in New York Thursday. Still, oil is headed for its best quarterly gain since June 2009. U.S. crude supplies declined a sixth week and output slipped to the lowest since September 2014, government data showed Wednesday. Markets have whipsawed after the UK’s vote to leave the EU on June 23. Goldman Sachs Group Inc. said that a recovery in Nigerian production is a risk to its $50/bbl forecast for the second half of 2016.

 

"The fundamentals are not as supportive as they may seem at first glance," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "The cease-fire in Nigeria is putting downward pressure on the market. The return of the Nigerian oil production would take away one of the biggest supports of the market over the last several weeks."

 

Supply disruptions and falling U.S. output have helped cut a global surplus, sparking a rally of more than 85% since prices hit a 12-year low in February. Both the International Energy Agency and the Organization of Petroleum Exporting Countries forecast this month that the market is heading toward balance as demand growth outpaces supply.

 

West Texas Intermediate fell $1.16, or 2.3%, to $48.72/bbl at 12:21 p.m. on the New York Mercantile Exchange. Prices climbed 7.7% the prior two days. Total volume traded was 19% below the 100-day average.

 

U.S. Stockpiles

 

Brent for August settlement, which expires Thursday, fell 96 cents, or 1.9%, to $49.65/bbl on the London-based ICE Futures Europe exchange. Prices are up about 25% this quarter. The more-active September contract fell $1.25 to $50.07/bbl. Front-month Brent futures traded at a 93-cent premium to WTI.

 

U.S. crude inventories dropped to 526.6 MMbbl, the lowest since the week ended March 11, the Energy Information Administration said. Supplies climbed to an 87-year high of 543.4 MMbbl in the last week of April. Production slipped by 55,000 bopd to 8.62 MMbopd last week, the EIA said.

 

If a cease-fire between Nigeria’s government and militants is sustained, output could climb, with officials "optimistically” predicting a return to normal levels by the end of July, Goldman Sachs analysts including Damien Courvalin wrote in a note dated June 29. The return of barrels poses a risk to the bank’s price outlook as it would bring the global oil market close to balance over the final six months of the year, instead of the deficit it currently projects.

 

Market Share

 

"Oil producers are trying to grab all the market share they can right now," said Dave Anderson, head of credit and political risk at Zurich Insurance in Washington.

 

Saudi Arabia, the world’s largest crude exporter, cut pricing for its August oil sales to Asia and the U.S. State-owned Saudi Arabian Oil Co. lowered its official selling price for all grades to Asian and U.S. customers, the company known as Saudi Aramco said in an emailed statement Thursday. Middle Eastern producers are competing with cargoes from Latin America, North Africa and Russia for buyers in Asia, its largest market.