Oil pares weekly drop as wildfire disruptions battle oversupply

08/05/2016 05:22 AST

Oil pared its first weekly decline in more than a month as oil-sands disruptions in Canada and lower US output offset rising stockpiles and Opec production.

A wildfire in Alberta has shut more than one million barrels a day of oil-sands output capacity after workers were evacuated, while production sites have so far escaped damage. US crude inventories rose to the highest since 1929 while output dropped the most in eight months last week, a government report on Wednesday showed. Opec output climbed in April amid gains from Iran and Iraq, according to data compiled by Bloomberg.

“The market is internalising how much outage it may have in Canada versus the increases in production elsewhere,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London, said by telephone. “You have some of these unplanned outages being offset by increases in Opec production.”

West Texas Intermediate for June delivery rose 34 cents to settle at $44.66 a barrel on the New York Mercantile Exchange after reaching an intraday high of $45.34 a barrel following a report that showed US employers in April added the fewest workers in seven months. Prices declined 2.7 per cent this week, the first weekly drop since the week ended April 1.

Brent for July settlement climbed 36 cents, or 0.8 per cent, to end the session at $45.37 a barrel on the London-based ICE Futures Europe exchange. Prices dropped about 6 per cent this week. The global benchmark was at a premium of 5 cents to WTI for July. Prices remain about 60 per cent below their peak in mid-2014 as the global oversupply persists. US stockpiles swelled to 543.4 million barrels last week, according to the Energy Information Administration. Citigroup Inc predicts inventories will expand further to a record before starting a seasonal slide. The Organisation of Petroleum Exporting Countries pumped 33.22 million barrels a day last month, according to data compiled by Bloomberg. Iraq increased output by 160,000 barrels, while Iran boosted production by 300,000 barrels to the highest level since December 2011.

Canadian Wildfire
Suncor Energy Inc, Royal Dutch Shell Plc and Husky Energy Inc are among companies that shut plants or reduced production due to the wildfires in Alberta. The fire has caused the evacuation of more than 80,000 people in Fort McMurray, the town at the heart of the Athabasca deposit, one of three large bitumen reserves that make up Alberta’s oil sands.

The number of active oil rigs fell to 328 this week, the least since October 2009, according to Baker Hughes Inc US production slid by 113,000 barrels a day to 8.83 million last week, the biggest weekly drop since August 2015, according to the EIA report released on Wednesday.

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