Oil extends drop for third day as US supplies seen increasing

MELBOURNE (Bloomberg) - Oil declined for a third day before U.S. government data forecast to show crude stockpiles expanded further from a record.

Futures slid as much as 1.6 per cent in New York. Crude inventories probably rose by 2.5 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday. Saudi Arabia said it will keep pumping oil to meet any demand for its supplies, increasing concern a global glut may persist.

Oil's recovery from a six-year low in March has faltered as U.S. crude stockpiles continue to gain, even as drillers cut the number of active rigs to the lowest level since October 2010. Saudi Arabia would be open over the next six weeks to discussing a multilateral deal to cut output, particularly if Russia takes part, according to Standard Chartered Plc.

"Oil has stalled after its recent run and that's the market coming to the realization that we've still got quite a lot of crude," said David Lennox, a resource analyst at Fat Prophets in Sydney. "We'll need to see at least 1 million barrels to 2 million barrels a day cut from production globally to see a sustained rally."

West Texas Intermediate for June delivery dropped as much as 92 cents to US$56.07 a barrel in electronic trading on the New York Mercantile Exchange, and was at US$56.31 at 1:03 p.m. Sydney time. The contract lost 16 cents to $56.99 on Monday. The volume of all futures traded was about 46 per cent below the 100-day average. Prices are up 18 percent this month.

Crude Stockpiles Brent for June settlement decreased as much as 87 cents, or 1.3 per cent, to US$63.96 a barrel on the London-based ICE Futures Europe exchange. It fell 45 cents to US$64.83 on Monday. The European benchmark crude traded at a premium of US$7.87 to WTI.

The oil market is in "excellent" condition, said Prince Abdulaziz bin Salman, Saudi Arabia's deputy oil minister. The world's biggest exporter seeks to keep customers happy and maintain stability of prices, demand and supply, he told reporters on Monday in the eastern city of Khobar. The kingdom boosted output to 10.1 million barrels a day in March, close to an all-time peak, the International Energy Agency reported April 15.

In the U.S., the world's biggest oil consumer, crude stockpiles have advanced the prior 15 weeks to 489 million, the highest level in weekly EIA data that started in August 1982. Supplies haven't been this high since 1930, according to monthly records dating back to 1920.

Production slid by 18,000 barrels a day to 9.37 million a day, the slowest pace in six weeks, data from the Energy Department's statistical arm show. Drillers seeking oil cut the number of active rigs to 703, according to data from Baker Hughes Inc., an oilfield-services company.

Reports of declining output and plummeting rig counts has left "no doubt" that the drop in production is set to accelerate, Paul Horsnell, global head of commodities research at Standard Chartered in London, said in a report. The reduction in U.S. activity and a rebound in prices have probably pleased Saudi Arabian policy makers, he said.

Saudi Arabia will meet the other 11 members of the Organization of Petroleum Exporting Countries on June 5 to assess the market and production levels.

Join ST's Telegram channel and get the latest breaking news delivered to you.