OIL PRICES UPDOWN
U.S. and global oil benchmarks fell Monday as reports said Canada's wildfires that have curtailed oil output there have slowed and moved away from key production facilities.
After jumping more than 2% as the markets opened with Asian trading Sunday night, both major contracts fell as reports emerged that the threat from the fires was diminishing, at least for the moment.
The market's losses deepened midmorning Monday as private energy data forecaster Genscape Inc. said inventories at the key U.S. delivery hub in Cushing, Okla., rose 1.4 million barrels last week, according to reports. If the figures prove accurate when official U.S. Energy Department data are released Wednesday, it would add yet more oil to a U.S. system already brimming with near-record levels of stored supplies.
"Both factors knocked the market lower," said Gene McGillian, senior analyst with brokerage Tradition Energy. "Some of the fears we had seem to have dried up all of a sudden. Both seemed to point to a weak fundamental picture."
The U.S. benchmark ended down 2.7% at $43.44 a barrel on the New York Mercantile Exchange, and the global Brent contract lost 3.8% to finish at $43.63 a barrel on the ICE Futures Europe exchange. After rallying more than 70% in the previous three months from multiyear lows, both contracts have begun to pull back from 2016 highs amid concerns that the price rally has run ahead of major improvements in underlying supply-and-demand conditions.
News over the weekend indicated the fires were growing worse, shutting down as much as 1 million barrels a day of Canadian oil-sands production. That figure represents about a third of the country's production, which is the top foreign source of oil for the U.S. That, combined with Saudi Arabia's firing on Saturday of its longtime oil minister, Ali al-Naimi, had markets poised for a rally Monday.
But the Canada fires, which traders said posed a more immediate concern to supply, began to fade as a concern early Monday. Reports of damage to production facilities have been limited, and the shutdown so far has been a precautionary measure to evacuate workers. Light rains and cooler temperatures in the Alberta region were said to help slow the fire’s advance, and it was also beginning to move away from key parts of the region.
A key emerging question has been how quickly companies in Canada could restore production once the fires are under control, but many analysts said it was too soon to know. One factor would be how quickly housing facilities for oil workers could be provided.
The lack of damage "could allow for a fast ramp-up in production, once the fire is under control," Goldman Sachs Group Inc. said in a research note. Still, the firm noted the situation remains uncertain.
And while the total amount of supply lost to the U.S. could reach 14 million barrels, Goldman said—less than a days' worth of domestic consumption—the U.S. still has more than 543 million barrels of oil in storage, according to Energy Department data.
In refined product markets, gasoline futures fell 3.6% to $1.4427 a gallon, and diesel futures dropped 3.8% to $1.2863 a gallon.
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