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Oil Prices Fall on Inventory Buildup, Rising Production

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03/14/2018 | 05:19 pm

By Alison Sider and Sarah McFarlane

Oil prices slid from gains to losses Wednesday as a larger-than-anticipated increase in crude inventories and relentlessly rising U.S. production outweighed a drop in fuel stockpiles.

Light, sweet crude for April delivery fell 45 cents, or 0.74%, to $60.26 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 36 cents, or 0.56%, to $64.28 a barrel on ICE futures Europe.

U.S. inventories of crude oil rose by 5 million barrels according to the U.S. Energy Information Administration -- double what analysts surveyed by The Wall Street Journal had anticipated, and significantly more than the 1.2 million-barrel build reported by industry group the American Petroleum Institute on Tuesday.

And inventories at the Cushing, Okla., storage hub rose for the first time in nearly three months, edging higher by 338,000 barrels.

At the same time, U.S. production continued its march higher, rising by 12.000 barrels a day to yet another weekly record of 10.38 million barrels a day.

"At the end of the day the numbers that broke the camel's back were the crude oil number, domestic production and the first build at Cushing in 12 weeks," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc.

Oil futures for April delivery have slipped below the May contract in recent days, which could be a bearish signal that discourages more investment. When near-term prices are lower than prices further out, it can make it profitable to store oil for the future, which can be a sign of oversupply and can allow a buildup in storage. It also makes it costly for investors to roll their positions from one month to the next.

"WTI curve weakening is a significant bearish portent since it is likely to deter fresh buying interest as roll yields become less attractive," Jim Ritterbusch, president of Ritterbusch & Associates, wrote in a client note.

On the positive side for oil prices, consumers soaked up large amounts of fuel, which pushed prices higher at times Wednesday morning: gasoline stockpiles dropped by 6.3 million barrels and diesel stockpiles fell by 4.4 million barrels -- outpacing the drops analysts had been expecting. Gasoline futures rose 0.99% to $1.9049 a gallon. Diesel futures edged up 0.02% to $1.8743 a gallon.

But the oil market continued to be caught between rising U.S. output and efforts by the Organization of the Petroleum Exporting Countries and other major producers to cut output.

OPEC crude production continued to fall in February, dropping by 77,000 barrels a day compared with the prior month, to average 32.19 million barrels a day, the cartel said Wednesday in its closely watched monthly oil market report. But the group said total global oil supply rose last month, in a sign that U.S. shale production is undermining Saudi efforts to rebalance the market.

The International Energy Agency and the EIA have both recently revised their U.S. oil production forecasts higher. Output has been helped by the 25% rise in oil prices over the past year, along with improvements in efficiency and technology.

"This U.S. shale engine is not expected to run out of steam anytime soon, " said Stephen Brennock, analyst at brokerage PVM.

--Christopher Alessi contributed to this article.

Write to Alison Sider at alison.sider@wsj.com and Sarah McFarlane at sarah.mcfarlane@wsj.com

Corrections & Amplifications

This item was corrected at 11:06 a.m. ET on Thurs., March 15, 2018 to clarify that Energy Information Administration reported an increase of 12,000 barrels a day. The original misstated the figure as 2 million barrels a day.

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