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, -0.27%[1] 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, -1.03%[2] 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[3], 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...