Oil prices fell on Friday, reversing early gains as signs of weakening demand in China and surging U.S. output weighed on markets despite support from supply woes in Venezuela and OPEC’s production cuts.
Brent crude futures, the international benchmark for oil prices, were at $ 76.79 per barrel at 0654 GMT, down 53 cents, or 0.7 percent, from their last close.U.S. West Texas Intermediate (WTI) crude futures were down 38 cents, or 0.6 percent, at $ 65.57 a barrel.
China’s May crude oil imports eased away from a record high hit the month before, customs data showed on Friday, with state-run refineries entering planned maintenance.
May shipments were 39.05 million tonnes, or 9.2 million barrels per day (bpd), according to the General Administration of Customs. That compared with 9.6 million bpd in April.
Further weighing on prices has been surging U.S. output, which hit another record last week at 10.8 million bpd.
That’s a 28 percent gain in two years, or an average 2.3 percent growth rate per month since mid-2016. It puts the United States close to becoming the world’s biggest crude oil producer, edging nearer to the 11 million bpd churned out by Russia.
The surge in U.S. production has pulled down U.S. WTI crude into a steep discount versus Brent to more than $ 11 per barrel, its steepest since 2015.
“This is occurring because of the rapid increase in production from U.S. shale coupled with the tightening of supplies elsewhere through the actions of OPEC and Russia,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.
Despite Friday’s falls, Brent remains more than 15 percent above its level at the start of the year.U.S. investment bank Jefferies said on Friday that the “crude market is tight and spare capacity could dwindle to 2 percent of demand in 2H18, its lowest level since at least 1984”.
Markets have been tightened by supply trouble in Venezuela, where state-owned oil firm PDVSA is struggling to clear a backlog of around 24 million barrels of crude waiting to be shipped to customers.
More generally, Brent has been pushed up by voluntary production cuts led by the Middle East dominated producer cartel of the Organization of the Petroleum Exporting Countries (OPEC) and by top producer Russia, which were put in place in 2017.
The group and Russia are due to meet at its headquarters in Vienna on June 22 to discuss production policy.”The June 22 OPEC meeting will now likely become the most important factor influencing (the) crude price,” Jefferies said.