Futures Movers: Oil prices sink as traders fret over U.S. output growth

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Oil futures headed lower on Thursday, with U.S. benchmark prices failing to hold earlier gains as pressure from a jump in weekly U.S. production to a fresh record outweighed support from a hefty weekly decline in domestic crude stockpiles.

The global crude benchmark, meanwhile, relinquished some of the gains notched in the previous session as traders weighed prospects for a decision next week related to the output-cut agreement by major oil producers.

July West Texas Intermediate crude
CLN8, -0.29%
fell by 27 cents, or 0.4%, to $66.37 a barrel on the New York Mercantile Exchange. Prices for the U.S. benchmark had posted gains in each of the last three sessions, settling Wednesday at a nearly two-week high.

August Brent crude
LCOQ8, -1.12%
the international benchmark, traded 59 cents, or 0.8%, lower, at $76.15 a barrel on ICE Futures Europe, giving back part of the 1.1% gain seen a day earlier.

A report from the U.S. Energy Information Administration released Wednesday showed that domestic stockpiles fell by 4.1 million barrels for the week ended June 8, while gasoline and diesel inventories came down by 2.3 million barrels and 2.1 million barrels, respectively.

That was the biggest one-week drop since the 4.6 million-barrel decline reported for the week ending March 30. Analysts surveyed by S&P Global Platts had forecast a smaller decline of 2.6 million barrels.

However, total domestic crude production climbed by 100,000 barrels a day to a fresh weekly record of 10.9 million barrels a day, the EIA report showed.

“Two of the major pillars” behind the 2018 oil rally have been high compliance among members and non-members of the Organization of the Petroleum Exporting Countries to their self-imposed output caps and “moderation in the pace of U.S. production growth,” said Tyler Richey, co-editor of the Sevens Report. “Now both of those bullish influences are coming into question as the market is focused on the June 22 [OPEC/NON-OPEC] policy meeting, and this recent spike in U.S. production.”

“If both bullish pillars crumble, it could ultimately mean that a full-on trend reversal is developing in the oil market,” said Richey.

The coming OPEC gathering could determine the outlook for production curbs that expire at the end of the year. A report from the International Energy Agency Wednesday pegged OPEC’s compliance with the agreement at 158% in May, down from 174% in April.

Recent reports say OPEC swing producer Saudi Arabia and major non-OPEC producer Russia want to lift production limits to account for expected geopolitically driven supply disruptions from Iran and Venezuela—two OPEC members.

“There have been reports that the two largest producers in OPEC-plus will propose an increase of 1 million barrels at the. Iraq, the third largest producer in OPEC, has said it wants to stick to the existing production plan,” wrote Robert Yawger, director at Mizuho Securities USA, in a Thursday research note.

Rounding out action in energy futures Thursday, July gasoline
RBN8, -1.80%
 fell 1.7% to $2.088 a gallon and July heating oil
HON8, -1.40%
 shed 1.4% to $2.155 a gallon.

Natural-gas futures fell after the EIA on Thursday reported that domestic supplies of the fuel rose by 96 billion cubic feet for the week ended June 8. Analysts polled by S&P Global Platts had forecast a climb of 88 billion cubic feet.

July natural gas
NGN18, -0.57%
 fell by 2.5 cents, or 0.8%, to trade at $2.938 per million British thermal units.


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