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Oil settles down 1.25% as glut fear persists

Oil prices were on track to a weekly loss as potentially higher Iraqi crude exports and bearish U.S. inventory data weighed on the market.

Also on Friday, the number of rigs operating in the United States rose for a fourth consecutive week, increasing by 14 to a total of 371 rigs, oilfield services firm Baker Hughes reported.

While many expect global oversupply of oil to ease in the near term, huge amounts of crude remain in vessels at sea and storage tanks on land as the rebalancing takes longer than some had anticipated.

Brent crude was down 54 cents, or 1.17 percent, at $45.66. It fell as low as $45.26 earlier, the lowest since May 11. The contract was on pace for a weekly loss of nearly 5 percent.

U.S. West Texas Intermediate (WTI) settled down 56 cents, or 1.25 percent, at $44.19 a barrel, and last fell 57 cents, or 1.27 percent, to $44.18.

A pump jack and pipes at an oil field near Bakersfield, California.
Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

In the Middle East, Iraq's oil exports are set to rise in July, according to loading data and an industry source, putting supply growth from OPEC's second-largest producer back on track after two months of decline.

Exports from southern Iraq in the first 21 days of July have averaged 3.28 million barrels per day (bpd), according to loading data tracked by Reuters and an industry source. That would be up from 3.18 million bpd in June.

The rise came as a report by BMI Research on Friday said fundamentals in the Asian diesel market remain weak, as demand for the fuel continues to wane in key Asian markets.

"Tight margins, ample supplies and brimming stockpiles at key diesel storage hubs suggest that a pullback in diesel output is imminent," the report said.

While U.S. production has been falling, crude inventories are at 519.5 million barrels, historically high for this time of year, the government's Energy Information Administration said this week.

U.S. crude and oil product stocks rose 2.62 million barrels to an all-time high of 2.08 billion barrels as gasoline stocks posted a surprise summer build of 911,000 barrels.

Adding to that, market intelligence firm Genscape reported on Thursday a build of 725,176 barrels for the week to July 19 at the Cushing, Oklahoma delivery point for U.S. crude futures, traders said.

"These large and increasing stocks will not only up the likelihood of additional commercial short hedges, but will also encourage the commercials to defer long hedges given the comfort of more than ample supply availability," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

Falling prices in the United States, coupled with low shipping costs, have also encouraged traders to send U.S. oil to Europe, which would add to supply in the region.

This has helped the market shake off further disruptions in Nigeria, where the largest stream of crude is under force majeure and pipeline attacks have cut some 700,000 barrels per day from production, according to state oil firm NNPC.

"There is so much oil in storage that it will take months to truly feel the erosion of the overhang," Energy Aspects said in a note.

Inventories of oil products have also been climbing in Europe and Asia, with gasoline stocks in the Amsterdam-Rotterdam-Antwerp hub at record highs and BMI Research warning of "brimming stockpiles" in Asia.

"The narrative of a balanced oil market (in the second half of 2016) has so far been an illusion," UBS oil analyst Giovanni Staunovo said.

"Supply might actually increase in the near term with the further return of disrupted production and higher Middle East production, while demand growth is set to slow in emerging Asia."

Even so, some market participants braced for volatile trading.

"Our view is that WTI will fall to $40 in the near term but rebound to $60 or even $70 by the year-end," said Salvatore Recco, who helps oversee about $2 billion of client money at Gravity Investments in Denver, Colorado.