US crude dips 21 cents, settling at $65.74, as China demand dips, JP Morgan cuts price forecast

  • Oil prices dropped on Friday, pressured by falling demand from China and increased U.S. output.
  • JP Morgan cut its 2018 crude forecast for WTI by $3 to $62.20 a barrel, traders said.
  • One of the key features of oil markets recently has been the widening discount of U.S. WTI crude versus Brent.
An oil pump jack in Gonzales, Texas.
Getty Images
An oil pump jack in Gonzales, Texas.

Oil prices fell on Friday, extending losses as JP Morgan cut its crude price forecast, after already weakening on concerns about surging U.S. output weighed and falling demand in China.

U.S. West Texas Intermediate (WTI) crude futures ended the session down 21 cents at $65.74. The contract fell slightly on the week, marking its third straight loss over a five-day period.

Brent crude futures were down 87 cents, or 1.1 percent, at $76.45 per barrel at 2:29 p.m. ET, on pace for a slight weekly increase.

"It's all about the JP Morgan report," said Bob Yawger, director of energy futures at Mizuho in New York.

JP Morgan cut its 2018 crude forecast for WTI by $3 to $62.20 a barrel, traders said. The bank did not immediately respond to a request for the report.

Crude prices were down slightly earlier in the session after data suggested Chinese demand was waning and concerns lingered about growing U.S. output. China's May crude oil imports eased away from a record high hit the month before, customs data showed on Friday, with state-run refineries entering planned maintenance.

May shipments were 39.05 million tonnes, or 9.2 million barrels per day (bpd). That compared with 9.6 million bpd in April.

Further weighing on prices has been surging U.S. output, which hit another record last week at 10.8 million bpd. That's a 28 percent gain in two years. It puts the United States close to becoming the world's biggest crude producer, edging nearer to the 11 million bpd churned out by Russia.

The surge in U.S. production has pulled down WTI into a discount versus Brent of more than $11 per barrel, its steepest since 2015.

"This is occurring because of the rapid increase in production from U.S. shale coupled with the tightening of supplies elsewhere through the actions of OPEC and Russia," said William O'Loughlin, investment analyst at Australia's Rivkin Securities.

U.S. energy companies added oil rigs for a third week in a row even though crude prices have declined about 8 percent over the past three weeks.

Drillers added one oil rig in the week to June 8, bringing the total count to 862, the highest level since March 2015, General Electric's Baker Hughes energy services firm said in its closely followed report on Friday.

U.S. investment bank Jefferies said the "crude market is tight and spare capacity could dwindle to 2 percent of demand in 2H18, its lowest level since at least 1984."

Markets have been tightened by supply trouble in Venezuela, where state-owned oil firm PDVSA is struggling to clear a backlog of around 24 million barrels of crude waiting to be shipped to customers.

More generally, Brent has been pushed up by voluntary production cuts led by the Organization of the Petroleum Exporting Countries and Russia, which were put in place in 2017.

OPEC and Russia meet on June 22/23 to discuss production policy.

On Friday, OPEC's third-largest producer Iran criticized a U.S. request that Saudi Arabia pump more oil to cover a drop in Iranian exports and predicted OPEC would not heed the appeal.

Headlines on OPEC members' plans for the meeting later this month will lead to volatile market swings, said Tariq Zahir, managing member of Tyche Capital Advisors in New York.

"I think it is going to be very choppy," he said.