Oil's April Rollercoaster Takes It Back to $50 on Supply Dilemma

(Bloomberg) -- After a rally in the first half of April, oil is set to end the month back below $50 a barrel.

Futures are down 2.4 percent this month in New York after slipping 6.3 percent in March. What’s worrying investors is expanding U.S. crude production, which threatens to dilute the impact of OPEC-led supply cuts. While Russia says it has fully implemented its pledged 300,000 barrel-a-day output reduction, analysts are still debating whether the Kremlin would be willing to join OPEC in extending the agreement for another six months.

American production has expanded to the highest since August 2015 and Saudi Arabia’s Energy Minister Khalid Al-Falih has acknowledged that the first quarter of curbs failed to bring stockpiles below the five-year average. While the Organization of Petroleum Exporting Countries and its allies mull extending the deal past June, U.S. drillers targeting crude have added rigs, taking the count to a two-year high.

“It’s been a troubled month for oil as the tug-of-war between OPEC’s cutting efforts and rising U.S. production continues,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “We maintain the view that the oil market remains range-bound for now. U.S. production growth slowing can push oil higher while the downside risk could be a slowdown in demand growth.”

West Texas Intermediate for June delivery rose as much as 1.4 percent on Friday from the lowest level in a month. It was up 39 cents at $49.36 a barrel on the New York Mercantile Exchange at 9:31 a.m. in London. Total volume traded was about 8 percent above the 100-day average. Prices lost 1.3 percent to $48.97 on Thursday, snapping a two-day gain.

OPEC Compliance

Brent for June settlement, which expires Friday, was 33 cents higher at $51.77 a barrel on the London-based ICE Futures Europe exchange. Prices are down 2 percent this month. The global benchmark crude traded at a premium of $2.38 to WTI. The more-active July contract rose 43 cents to $52.25.

See also: Saudi Aramco CEO says peak oil demand is a misleading theory

OPEC’s supply cuts have had some success as U.S. inventories have fallen for the past three weeks. Global stockpiles increased by less than average during the first quarter and producers’ compliance with the agreed supply cuts was at 98 percent in March, OPEC Secretary-General Mohammad Barkindo said in Paris Thursday.

Libya’s plans to restart two of its largest oil fields overshadowed Barkindo’s optimism. The nation’s National Oil Co. confirmed shipments would resume at the Zawiya oil port after a “substantial improvement in the security situation,” according to an emailed statement.

Oil-market news:

• Saudi Arabia’s oil exports fell 330,000 barrels a day in April compared with March, Geneva-based consultant Petro-Logistics said by email.

• Saudi Aramco Chief Executive Officer Amin Nasser defended petroleum as the mainstay of the global economy, countering theories that demand will peak within years with his own forecast that consumption will keep growing for decades.

To contact the reporters on this story: Rakteem Katakey in London at rkatakey@bloomberg.net, Ben Sharples in Hong Kong at bsharples@bloomberg.net.

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Dylan Griffiths

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