NEW YORK (DTN) -- Spot-month West Texas Intermediate crude futures on the New York Mercantile Exchange plunged to a five-month low Thursday, taking down the rest of oil futures as oversupply worries triggered a major volley of technically-based selling that sent paper prices to the biggest one-day selloff in two weeks.
"The market is in a weak technical position, and there's expectation we'll add more to the global supply after Libyan government announced a power-sharing agreement, which means they'll have peace and will boost production," said analyst Phil Flynn at Price Futures Group.
Flynn said although the Organization of Petroleum Exporting Countries indicated it will extend its current oil production cut through December, the market now thinks that won't be enough to rid the global market of excess supply.
That's because for almost every barrel of oil taken out of the market by OPEC another is being added by the United States and other producers that are not part of the supply agreement signed last fall by OPEC and 11 non-OPEC producers, including Russia and Mexico.
Wire reports said three OPEC delegates said a six-month extension of current cuts is likely when the current scheme runs out on June 30, but there probably won't be any move to deepen the cuts.
Cartel members are set to meet on May 25 to discuss extension of the supply cuts.
Their efforts have been undercut by U.S. producers. U.S. commercial crude stock surplus is 15.7 million bbl year-on-year and 117.7 million bbl above five-year average as of the week ended April 28. Domestic crude production is at a 20-month high and at 9.29 million bpd output is 1.3 million bpd above five-year average.
U.S. producers have been adding barrels consistently since the recent trough in August 2016, Energy Information Administration's data shows. On Friday, oil services firm Baker Hughes, Inc. will release its latest weekly rig-count report for the week ended May 5.
"The U.S. has been adding about 20,000 bpd every week for the past two to three months, which translates to 0.8 for every barrel OPEC takes out of the market, and we are not slowing down on production," said analyst Kyle Cooper at IAF Advisors. "The longer it takes OPEC to cut global supply the more likely traders who are bullish now will opt to sell because doubts are growing and people are getting concerned. The outlook is bearish."
In paper trade, NYMEX June WTI and IntercontinentalExchange July Brent crude contracts plummeted to their lowest levels since Nov. 30, the day OPEC announced its agreement for output cuts. The selloff was exacerbated when WTI breached its $47.01 March 22 low this morning, a level that was considered a key support for the frontline contract.
At settlement, NYMEX June WTI futures fell $2.30 to $45.52 bbl, moving off a $45.29 five-month spot low. ICE July Brent crude futures tumbled $2.41 to $48.38 bbl, near a $48.16 five-month spot low.
NYMEX June ULSD futures declined 6.13cts to $1.4123 gallon, near a 5-1/2-month spot low of $1.4067, after slipping thru support at $1.4148. June RBOB futures tumbled 5.26cts to $1.4812 gallon, near a $1.4683 two-month spot low and took aim at the $1.4650 low posted on Feb. 8.
George Orwel can be reached at firstname.lastname@example.org
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