Oil Slips on Signs of Higher Production

Oil prices edged lower Tuesday, as the market weighed signs of increasing production against the rebalancing of global supply and demand.

Light, sweet crude for November delivery settled down 16 cents, or 0.3%, at $50.42 a barrel on the New York Mercantile Exchange, the lowest close since Sept. 20. Brent, the global benchmark, lost 12 cents, or 0.2%, to $56.00 a barrel.

Prices rose more than 12% in the third quarter, as signs of lower global inventories and decreased production pushed crude futures into a bull market in late September. Since then, the rally has stalled as investors have taken profits, skeptical that prices will continue to gain in the short term.

"Those levels were deemed as good selling points, and I think we're seeing a continuation of that today," said Tony Headrick, an analyst at CHS Hedging.

Investors are watching the Organization of the Petroleum Exporting Countries for signs on whether its members will extend their production cuts beyond the current end date of March 2018.

"What the market is always concerned about is as the price goes higher, the world produces more, and prices are capped," said Richard Fullarton, founder of London-based hedge fund Matilda Capital Management Ltd. "A smart move for OPEC would be to keep the cuts in place for longer than the people expect, to create a new base for oil prices."

There are also questions over whether OPEC members are adhering to quotas, which could be more problematic if prices rise, analysts said.

Late last week analysts surveyed by Reuters pegged OPEC's September output at 32.86 million barrels a day, up from the previous month and above its production cap, indicating a fall in compliance by its members.

"One can only conclude that unless OPEC approaches the original production target of its 14 members of just below 32 million barrels per day, rebalancing will suffer a major and possibly prolonged setback," said Tamas Varga, analyst at brokerage PVM.

Traders also will be watching the weekly storage report from the U.S. Energy Information Administration, continuing to weigh the negative impacts of hurricane season on supply and demand in key areas such as Houston.

Traders and analysts surveyed by The Wall Street Journal expect on average that crude inventories decreased by 300,000 barrels in the week ended Sept. 29. Gasoline stockpiles are expected to increase by 1.2 million barrels and distillate stockpiles are expected to fall by 1.8 million barrels. The EIA report is scheduled for release at 10:30 a.m. ET Wednesday.

"The demand narrative was going to be called into question for the fall season, because it naturally declines," said John Kilduff, founding partner at Again Capital. "We're starting to see the market react to that."

Gasoline futures rose 0.7% to $1.5655 a gallon, and diesel futures fell 0.9% to $1.7505 a gallon.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Stephanie Yang at stephanie.yang@wsj.com

Oil prices edged lower Tuesday, as the market weighed signs of increasing production against the rebalancing of global supply and demand.

Light, sweet crude for November delivery settled down 16 cents, or 0.3%, at $50.42 a barrel on the New York Mercantile Exchange, the lowest close since Sept. 20. Brent, the global benchmark, lost 12 cents, or 0.2%, to $56.00 a barrel.

Prices rose more than 12% in the third quarter, as signs of lower global inventories and decreased production pushed crude futures into a bull market in late September. Since then, the rally has stalled as investors have taken profits, skeptical that prices will continue to gain in the short term.

"Those levels were deemed as good selling points, and I think we're seeing a continuation of that today," said Tony Headrick, an analyst at CHS Hedging.

Investors are watching the Organization of the Petroleum Exporting Countries for signs on whether its members will extend their production cuts beyond the current end date of March 2018.

"What the market is always concerned about is as the price goes higher, the world produces more, and prices are capped," said Richard Fullarton, founder of London-based hedge fund Matilda Capital Management Ltd. "A smart move for OPEC would be to keep the cuts in place for longer than the people expect, to create a new base for oil prices."

There are also questions over whether OPEC members are adhering to quotas, which could be more problematic if prices rise, analysts said.

Late last week analysts surveyed by Reuters pegged OPEC's September output at 32.86 million barrels a day, up from the previous month and above its production cap, indicating a fall in compliance by its members.

"One can only conclude that unless OPEC approaches the original production target of its 14 members of just below 32 million barrels per day, rebalancing will suffer a major and possibly prolonged setback," said Tamas Varga, analyst at brokerage PVM.

Traders also will be watching the weekly storage report from the U.S. Energy Information Administration, continuing to weigh the negative impacts of hurricane season on supply and demand in key areas such as Houston.

Traders and analysts surveyed by The Wall Street Journal expect on average that crude inventories decreased by 300,000 barrels in the week ended Sept. 29. Gasoline stockpiles are expected to increase by 1.2 million barrels and distillate stockpiles are expected to fall by 1.8 million barrels. The EIA report is scheduled for release at 10:30 a.m. ET Wednesday.

The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed a 4.1-million-barrel decrease in crude supplies, a 4.2-million-barrel increase in gasoline stocks and a 600,000-barrel decline in distillate inventories, according to a market participant.

"The demand narrative was going to be called into question for the fall season, because it naturally declines," said John Kilduff, founding partner at Again Capital. "We're starting to see the market react to that."

Gasoline futures rose 0.7% to $1.5655 a gallon, and diesel futures fell 0.9% to $1.7505 a gallon.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Stephanie Yang at stephanie.yang@wsj.com

(END) Dow Jones Newswires

October 03, 2017 17:11 ET (21:11 GMT)