Brent crude off 2016 high on OPEC output rise

05/05/2016 04:53 AST

A bigger-than-expected build in US crude inventories to fresh record highs pushed oil markets down after an early rally on Wednesday over concerns about production cuts in Canada’s oil sands region due to a wildfire.

US crude stocks, which have been setting record highs since January, grew 2.8 million barrels last week, government data showed, about a million barrels more than analysts’ expectations. Gasoline stocks also posted a surprise increase.

The data overshadowed concerns over evacuations in the Canadian province of Alberta, where a wildfire raged unchecked through the Canadian city of Fort McMurray in the heart of the country’s oil sands region, prompting some companies, including Suncor Energy and Royal Dutch Shell, to cut back production.

“It’s hard to see how it (the wildfire) wouldn’t have a broader impact temporarily on pipeline exports,” said John Kilduff, a partner at Again Capital Management in New York. “I think it was a legitimate scare that will prove transitory.”

Brent crude was down 44 cents at $44.53 a barrel at 12:51 p.m. (1651 GMT), after trading as high as $46.01. US crude was down 17 cents at $43.48 a barrel, after hitting a session high at $44.88.

Brent crude has fallen more than 5 percent from Friday’s high in response to rising output from the Organization of the Petroleum Exporting Countries, signs of economic slowdown in the US and Asia, and a stronger dollar.

“It would not come as any surprise if speculative financial investors were to take profits against this news backdrop,” said Carsten Fritsch, analyst at Commerzbank.

While total OPEC output rose in April, outages around the world have been supporting prices. The Canada disruption adds to supply losses in Nigeria and Iraq, concern about renewed losses in Libya and fears that Venezuela’s cash crunch could hit the OPEC member’s output. Some believe the rally has further to go in 2016 as the supply glut eases.

“Investor optimism for oil has markedly improved,” said Nitesh Shah of ETF Securities. “We believe the gains in price are sustainable and not just driven by speculative gains.”

Arab News