(Bloomberg) -- Crude retreated from its highest level this year in London on concern a global surplus will linger. U.S. oil futures rebounded after an industry survey was said to report a smaller increase in stockpiles at the main storage hub.
Brent dropped as much as 2.9 percent. Prices need to fall further before production is sufficiently curbed to balance the market, Goldman Sachs Group Inc. estimates. West Texas Intermediate gained after Genscape Inc. was said to report a smaller inventory increase at Cushing, Oklahoma, according to analysts including Phil Flynn, senior market analyst at the Price Futures Group in Chicago. Supplies have more than doubled in the past 12 weeks at Cushing.
“We still have a lot of bearish fundamentals and Brent is under a lot of pressure,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The Cushing report is pushing up WTI but I think it may be short-lived.”
Brent for April settlement dropped $1.57, or 2.5 percent, to $61.01 a barrel at 10:50 a.m. New York time on the London-based ICE Futures Europe exchange. Prices rose 18 percent in February, the biggest monthly gain since May 2009. The European benchmark’s premium to WTI narrowed to $10.67 after widening to the most since January 2014.
WTI crude for April delivery gained 42 cents, or 0.8 percent, to $50.18 a barrel on the New York Mercantile Exchange after earlier falling 2.1 percent. Futures gained 3.2 percent last month. The volume of all futures traded was about 38 percent above the 100-day average for the time of day.
The Genscape report is “supporting WTI,” said Carl Larry, a Houston-based director of oil and gas at Frost & Sullivan. “Brent is under a lot more pressure here.”
Crude stockpiles in the U.S., the world’s biggest oil consumer, increased by 8.43 million barrels to 434.1 million through Feb. 20, the most in EIA weekly data going back to 1982. The U.S. will produce 9.3 million barrels a day of oil this year, up from 8.63 million in 2014, according to the Energy Department’s statistical arm. Output will climb to 9.52 million in 2016.
“Prices will have to move lower first to create a meaningful impact on supply,” Miswin Mahesh, an analyst at Barclays Plc in London, said in a report. “We expect further weakness ahead” in prices.
Rigs targeting oil in the U.S. fell to 986 last week, the lowest since 2011, according to data from Baker Hughes Inc. last week.
The current rig count implies output growth of 385,000 barrels a day by the fourth quarter from a year earlier, down 55,000 barrels a day from last week’s estimate, Goldman Sachs said in an e-mailed report Monday. The slowdown points to growth decelerating close to levels needed to balance the market, it said.
The Organization of Petroleum Exporting Countries boosted output to 30.6 million barrels a day in February, above its target of 30 million, according to a Bloomberg survey.
Saudi Arabia’s output advanced last month by 130,000 barrels a day to 9.85 million a day, the highest level since September 2013, according to the survey. The country pumps the most crude among the 12 nations of OPEC, which supply about 40 percent of the world’s oil.
“The realization that the Saudis are not cutting production is weighing on prices internationally,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.
Hedge funds raised bearish wagers on WTI by 17 percent to an all-time high of 117,646 contracts in the seven days ended Feb. 24, U.S. Commodity Futures Trading Commission data show. Net-long positions slid 3.1 percent to 202,609 lots, the lowest in seven weeks.
Money managers raised their net-long positions in Brent crude for a third week in the period to Feb. 24, data from ICE showed. Bullish wagers increased to 182,783 contracts, remaining at their highest level since July in futures and options combined.
To contact the reporters on this story: Moming Zhou in New York at firstname.lastname@example.org; Grant Smith in London at email@example.com
To contact the editors responsible for this story: Alaric Nightingale at firstname.lastname@example.org Stephen Cunningham, David Marino