Oil Falls on Ample Supply as Investors Shun Near-Term Contracts
-Oil declined in Asia on signs producers delivered ample supply into the market last month, and as investors continued to cut their exposure to nearer-term contracts.
Futures in New York fell as much as 6.5%, after gaining 17% last week. OPEC+’s pledge to trim supply by 9.7 million barrels a day took effect May 1, but the bloc’s production surged by the most in almost 30 years in April as its biggest members fought to dominate a global market devastated by coronavirus. Russia slightly increased its crude oil and condensate output before the agreed cuts kicked in.
Since crude plunged into negative territory last month, investors have been fleeing the nearest futures contracts, increasing volatility. S&P Global Inc., the company behind the most closely followed commodity index, said it will roll West Texas Intermediate crude oil futures for July into August for its commodity indexes. The United States Oil Fund (NYSE:USO) LP, which came under pressure from regulators last month due to the size of its WTI position, said on Friday that it will halve holdings in the July contract.
Algerian Energy Minister Mohamed Arkab, who holds OPEC’s rotating presidency, called on members of the cartel to implement more than 100% of their agreed cuts. And in a further sign of producers paring back their output, the number of rigs drilling for oil and gas tumbled almost 20% in April. In the U.S., the oil rig count dropped by 53 to 325, a seventh straight week of declines.
READ: Global Oil Demand Starts a Long, Painful and Uncertain Recovery
Oil futures rallied sharply last week on early signs that demand might be bottoming out, and as U.S. energy majors announced major cutbacks. Chevron Corp. (NYSE:CVX) will slash output by as much as 400,000 barrels a day and Exxon Mobil Corp (NYSE:XOM). plans to cut rigs in the Permian Basin by 75% by the end of the year.