US Crude Oil Drops on Record Production

The US crude oil lost more ground on Friday, with the market set for a second week of decline on pressure from record US production and higher Organization of the Petroleum Exporting Countries (OPEC) output expectations.

The US West Texas Intermediate crude dropped 13 cents or 0.2 percent at $66.91 per barrel after it fell almost 2 percent on Thursday, while the Brent crude lost 6 percent or 0.1 percent to trade at $77.50 per barrel.

According to the Energy Information Administration, the production of US crude has been rising to record-high levels since late last year. In March, it jumped 215,000 barrels per day (bpd) to 10.47 million bpd.

Mitsubishi’s Oil Risk Manager Tony Nunan said, “US production is growing, the line is growing straight up when you look at US production. The big thing is the increasing spread between Brent and WTI. Financially, it makes sense for buyers to take WTI as it is so cheap.”

Meanwhile, the premium for Brent over WTI surpassed $11 per barrel, the crude’s largest  premium since early 2015. A lot of output is trapped inland due to the lack of pipeline capacity in the US made the crude double in value in less than a month.

In summary, WTI is down 1.4 percent, while Brent is up 1.4 percent.

OPEC Cuts

OPEC and non-OPEC producers said to cut output by 1.8 million bpd until the end of 2018, but are ready to make gradual supply adjustments to deal with shortages.

According to sources, Saudi Arabia, the effective leader of OPEC, and Russia were negotiating boosting output of about 1 million bpd to compensate for losses in supply from Venezuela, and to address concerns about the impact of US sanctions on Iranian output.

A Russian energy ministry official said that the country would be able to raise its oil output back to pre-cut levels within months, if there is a decision to unwind the price-protection deal with OPEC and other producers.

On the other hand, concerns about US bottlenecks are also contributing to the decline of US futures. Prices for physical barrels of US light sweet crude delivered at Midland are at the highest discount in the past four years.

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