Crude oil prices retreat on US output rise

NEW YORK — Oil prices fell on Friday, dropping from highs last seen in 2015, as soaring US production undermined a 10% rally from December lows that was driven by tightening supply and political tensions in the Organization of Petroleum Exporting Countries (OPEC) member Iran.

Rising US output and weaker refined products demand weighed on the market, traders said.

“The holiday demand surge that we get is in the rearview mirror,” said John Kilduff at Again Capital. “That, coupled with the rebound in US production, is helping to undercut some of the recent price strength.” While product demand is up from a year earlier, robust stockpiles and a cold snap in the US could put a damper on demand for transportation fuels.

Traders said political tensions in Iran, the third-largest producer in the OPEC, had pushed prices higher.

West Texas Intermediate crude futures fell 57 cents to settle at $61.44 a barrel. WTI hit $62.21 the previous day, which was its strongest price since May 2015.

Brent crude futures for March delivery fell 45 cents, or 0.70%, to $67.62 a barrel. The previous day it touched $68.27, also the highest price since May 2015.

“Crude oil traders are probably getting some demand concerns at the $60 threshold for WTI and especially the risk that Brent — the biggie globally — could hang out above $65 for too long,” said Richard Hastings, macro strategist at Seaport Global Securities.

Oil prices have received general support from production cuts led by OPEC and Russia, which started in January last year and are set to last through 2018, as well as from strong economic growth and financial markets.

That has helped to tighten markets. US commercial crude inventories fell by 7.4 million barrels in the week to Dec. 29, to 424.5 million barrels, according to data from the Energy Information Administration.

That is down 20% from peaks last March and close to the fiveyear average of 420 million barrels.

Yet, surging US production could offset some of the cuts from OPEC producers, as it rose to 9.78 million barrels per day ( bpd) in the latest week, according to Wednesday’s report.

US drillers cut five oil rigs in the week to Jan. 5, bringing the total count down to 742, General Electric Co.’s Baker Hughes energy services firm said in its closely followed report on Friday.

The rig count, an early indicator of future output, is much higher than a year ago when only 529 rigs were active.

With Iranian production unaffected by unrest and US output likely to pass 10 million bpd, a level reached only by Saudi Arabia and Russia, doubts are emerging whether the bull run can last.

Bank Jefferies said the oil price “upside from here is not obvious to us,” but added it expected the oil market to remain undersupplied through 2018.

Julius Baer’s Ruecker said crude prices above $60 project an “overly rosy picture.”

“Oil production disruptions ( in Iran) remain a very distant threat ... disruptions in the North Sea have been removed ... (and) US oil production surpassed the 2015 highs in October and is set to climb to historic highs this year,” he said. —