Oil prices fall, with U.S. benchmark poised for second straight weekly loss

Oil prices headed lower Friday, with the U.S. benchmark poised to mark a second straight weekly decline, on the back of rising U.S. production and the possibility that OPEC and its allies may decide to boost output.

The market continues to see an overhang from expected return of production from Russia and Saudi Arabia give a relatively tight market, said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. We believe the near-term prospects for oil prices are likely soft, reflecting the likely tapering of OPEC production cuts in the next quarter.

July West Texas Intermediate crude
CLN8, -1.16%
on the New York Mercantile Exchange fell 43 cents, or 0.6%, to $66.61 a barrel. U.S. crude booked a 2.2% fall for May, according to data compiled by WSJ Market Data Group. It trades about 1.9% lower for the week after losing 4.9% the week before.

Read: Atlantic hurricane season rattles nerves in the commodities markets

On ICE Futures Europe, August Brent crude
LCOQ8, -0.53%
fell $1.14, or 1.5%, to $76.42 a barrel. On a most-active basis, Brent crude ended May with a 3.2% gain. It was looking to end the week nearly flat.

Brent found support from around midweek on remarks by Saudi officials that signaled the country wants to step up production only gradually in reaction to lost production out of Venezuela and, potentially, Iran, while keeping the agreement between the Organization of the Petroleum Exporting Countries and other major producers to curb overall production in place through the end of the year, wrote analysts at Commerzbank.

While WTI crude initially rose in Brents slipstream, increased U.S. production from shale areas and pipeline bottlenecks served to weigh on the U.S. benchmark, they said. As a result, the spread between Brent and WTI had widened to around $11 a barrel, the biggest gap since March 2015.

James Williams, energy economist at WTRG, pointed out that a meeting will be held Saturday between Saudi Arabia, Kuwait and the United Arab Emirates, according to a news report.

This is a gathering of the only OPEC members with spare production capacity, he said. They have a combined spare capacity of about 2 million barrels a day. That, combined with the meeting between Saudi Arabia and Russia last week, indicates that there are ongoing discussions to increase production, he said.

OPECs next regular meeting will be held on June 22 and Williams doesnt expect to see any definitive statements until then.

Meanwhile, monthly data from the EIA Thursday showed that U.S. crude production rose 2.1% to 10.474 million barrels a day in March, from February. It was also up 14.6% from March 2017.

Traders will be looking ahead to the latest weekly rig count data from oil-field services firm Baker Hughes
BHGE, +2.25%
later Friday. Itll offer a hint on possible production growth.

WTI ended lower Thursday despite data that showed U.S. crude supplies declined more than expected.

Domestic crude stocks fell by 3.6 million barrels for the week ended May 25. The EIA had initially reported a decline of 4.2 million barrels for the week but then corrected the figure on Thursday afternoon.

Analysts said the drop in crude inventories was offset to some degree by minor increases in stocks of gasoline and distillates.

For now, the oil market appears to be in a wait and see mode as the longer term uptrend remains in tact but so far there is no sign that this pullback in oil is over just yet, said Tyler Richey, co-editor of the Sevens Report.

In other energy trading, July gasoline futures
RBN8, -0.50%
fell 1.2% to $2.134 a gallon, with the contract trading about 1.9% lower for the week, while July heating oil
HON8, -0.87%
fell 1.6% to $2.169 a gallon, poised for a weekly loss of 1.6%.

July natural gas
NGN18, -0.14%
declined by 0.4% to $2.941 per million British thermal units. The contract traded down about 0.7% for the week.

Friday marks the start of the Atlantic hurricane season, which can disrupt a range of commodities markets.

It seems the Gulf of Mexico and southeast Atlantic coast may be the most likely areas for landfall, said AccuWeather forecaster Dale Mohler. This means natural gas and oil interests in the Gulf of Mexico, as well as refineries along the Texas and Louisiana coastlines maybe at a greater than normal risk.

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