Oil extends losses after API reports huge U.S. crude build

By Jessica Resnick-Ault

NEW YORK (Reuters) - Oil prices that tumbled more than 1 percent Tuesday fell further after settlement, pressured by growing crude stockpiles in the United States as evidence of a burgeoning revival in U.S. shale production could complicate efforts by OPEC and other producers to reduce a supply glut.

Brent crude settled down 67 cents, or 1.2 percent, at $55.05 a barrel, while U.S. crude ended 84 cents, or 1.6 percent, lower at $52.17.

Brent dropped to $54.70 and U.S. crude to $51.75 by 4:39 p.m. Eastern (2139 GMT) in post-settlement trading after weekly data from trade association the American Petroleum Institute estimated that U.S. crude stockpiles had surged 14.2 million barrels last week.

 

If U.S. Energy Information Administration data due on Wednesday at 10:30 a.m. confirms the stockpile surge, it will be the largest build since October.

Analysts have forecast that U.S. crude stockpiles rose 2.5 million barrels last week - a fifth straight weekly build - while gasoline inventories grew 1.1 million barrels - a sixth consecutive weekly build.

U.S. gasoline stocks are rising much faster than normal at the start of the year, threatening to leave refiners struggling to clear an overhang of motor fuel later in the year.

U.S. gasoline futures fell to settle at $1.4875 a gallon, after dropping earlier in the session below the 200 day moving average on a continuous chart, a bearish technical signal.

"It's a supply-driven setback ... We are within 2 million barrels of the record in U.S. gasoline stocks that we saw last February," said Tony Headrick, energy markets analyst at CHS Hedging. "A strong build in inventory reports could weigh on gasoline in a seasonal time frame where gasoline demand is weak."

The oil market has been supported for two months as the Organization of the Petroleum Exporting Countries and other exporters have agreed to cut output by almost 1.8 million barrels per day (bpd) since the start of the year. OPEC and Russia have together cut at least 1.1 million bpd so far.

But market players are concerned that rising U.S. shale production and signs of slowing demand growth could offset these efforts.

The U.S. government slightly trimmed its forecast for 2017 production but the market shrugged off the monthly report as its demand forecast was little changed.

"The general perception is that OPEC is cutting production, which is supporting prices, but high stock levels, rising rig counts and growing U.S. production are capping gains," said Tamas Varga, analyst at London brokerage PVM Oil Associates.

Societe Generale oil analyst Michael Wittner said U.S. shale oil output was recovering faster than expected.

"Rig counts are increasing at an accelerating pace, and given the technological advances of the past three years, this should translate into significant supply," Wittner said.

"U.S. shale is coming back, and it's coming back strong."

Chinese oil demand grew in 2016 at the slowest pace in at least three years, Reuters calculations showed, the latest sign of slower demand from the world's largest energy consumer.

(Additional reporting by Christopher Johnson in London and Henning Gloystein in Singapore; Editing by Marguerita Choy and Jason Neely)