Oil extends losses as traders still disappointed by less-aggressive OPEC cut

Published: May 30, 2017 11:00 a.m. ET

Analyst: ‘Summer typically translates to seasonal production peaks’

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An oil company shown operating in the Gulf of Mexico.

Oil prices fell Tuesday, extending the recent drop that came as OPEC stopped short of taking more aggressive steps to cut production.

July West Texas Intermediate crude CLN7, -1.08%  declined by 47 cents, or 0.9%, to $49.33 a barrel on the New York Mercantile Exchange, while July Brent crude LCON7, -1.55%  gave up 77 cents, or 1.5%, to $51.52 a barrel on the ICE Futures exchange in London.

The crude complex “continues to look relatively weak” after the Organization of the Petroleum Exporting Countries “failed to provide any significant support during last week’s meeting,” said Robbie Fraser, commodity analyst at Schneider Electric.

WTI prices fell 1.7% last week, logging their first weekly decline in three weeks.

“Ultimately, the decision to extend production cuts should prove supportive, but it was clearly a disappointment to some bullish speculators who had anticipated deeper production cuts,” Fraser said. “Nonetheless, if OPEC can maintain their current compliance levels through the upcoming peak demand months, oil should see a sustained stretch of stock draws.”

Still, compliance with the cuts “won’t come as easy as previous months … as summer typically translates to seasonal production peaks for most OPEC countries,” said Fraser.

According to a report dated Monday, Goldman Sachs lowered its 2017 forecast for average WTI oil to $52.92 per barrel, down from $54.80 previously. It cut its view of average Brent prices this year to $55.39, down from $56.76.

“In the face of rising supply potential from shale, new projects and OPEC, 2018-2019 oil futures need to stay at/below $50/bbl to discourage further shale ramp [ups] and encourage OPEC to keep a range-bound market share,” analysts at Goldman Sachs wrote in a research note.

“Our analysis of well performance during 2016 shows that productivity growth across the major shale plays exceeded our 3%-10% per year estimates, highlighting ongoing productivity improvements as a result of continued technological enhancements/scale,” they said.

Data released Friday showed a rise in the number of active U.S. rigs drilling for oil for a 19th straight week, but it was the smallest weekly increase so far this year.

Back on Nymex, June gasoline RBM7, -0.69%  fell 1.4 cents, 0.8%, to $1.629 a gallon, while June heating oil HOM7, -1.03%  lost 1.8 cents, or 1.2%, to $1.546 a gallon.

July natural gas NGN17, -4.80%  traded at $3.162 per million British thermal units, down 14.8 cents, or 4.5%.

The shift lower for natural gas “comes as indications of increasing production continue to build,” said Fraser. “With relatively mild weather expected over the next 1-2 weeks, the July contract is now trading at the lowest level in roughly two months.”