US crude drops 2.2% in May to break 2-month winning streak, settling at $67.04 a barrel

Key Points
  • U.S. crude's discount to global Brent crude ballooned to its highest level in more than three years.
  • U.S. commercial crude inventories fell by 4.2 million barrels in the week to May 25, compared with analysts' expectations for a decrease of 525,000 barrels.
  • U.S. crude oil production jumped 215,000 barrels per day to 10.47 million bpd in March, the highest on record.
An oil pump jack in Gonzales, Texas.
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U.S. crude oil futures fell on Thursday despite a larger-than-expected decline in inventories, pushing its discount to global Brent crude to its highest level in more than three years.

U.S. West Texas Intermediate crude ended the session down $1.17, or 1.7 percent, at $67.04 a barrel. WTI fell 2.2 percent during May, breaking a two-month winning streak.

Brent crude was up 2 cents at $77.52 per barrel by 2:21 p.m ET, after settling the last session up 2.8 percent. Brent is heading for a more than 3 percent gain this month.

U.S. commercial crude inventories fell by 3.6 million barrels in the week to May 25, the Energy Information Administration reported. Analysts in a Reuters poll expected a decrease of 525,000 barrels.

Offsetting the big drop in crude stockpiles, gasoline stocks rose by 534,000 barrels, while distillate stockpiles, which include diesel and heating oil, jumped by 634,000 barrels. Inventories of both products were expected to fall by more than a million barrels.

Oil price decline 'temporary', says pro

West Texas futures have been under pressure as U.S. production keeps rising. In the most recent week, it rose toward 10.8 million barrels per day, a new weekly record, though those figures are less reliable than lagging monthly figures.

U.S. crude oil production jumped 215,000 bpd to 10.47 million bpd in March, the highest on record, EIA said in a monthly report on Thursday.

"Domestic production keeps rising, but it may have reached a point where increasing amounts of barrels of crude oil are becoming stranded," said John Kilduff, a partner at Again Capital LLC in New York.

At one point, the premium for Brent over WTI surpassed $11 a barrel, the largest spread since March 2015. That spread has doubled in less than a month, as a lack of pipeline capacity in the United States has trapped a lot of output inland.

"The Brent/WTI is blowing out. I think there must be what looks like some capitulation going on in the spread between those two contracts," Saxo Bank senior manager Ole Hansen said.

The wider premium makes U.S. crude exports more competitive than those linked to the Brent price, such as North Sea or West African grades of oil.

Oil prices driven more by financial markets than physical ones, says oil expert

Crude futures surged on Wednesday on a report that OPEC might continue its deal with Russia and other producers to cap production. That tempered concerns following earlier reports that OPEC could ease the output limits at its June 22 meeting.

"With the OPEC meeting still another three weeks away, oil prices are likely to remain sensitive to headlines," ANZ bank said in a note.

A Gulf source familiar with Saudi Arabia's thinking said OPEC and its allies aim to continue their agreement to cut oil output through the end of the year, but they are ready to make adjustments to offset any supply shortfall, Reuters reported on Wednesday.

Prior to that, the oil price slid to a three-week low below $75 a barrel on Monday after Organization of Petroleum Exporting Countries and its non-OPEC allies including Russia indicated they could adjust their deal to curb supplies and increase production.

Sources have told Reuters that Saudi Arabia, the effective leader of OPEC, and Russia were discussing boosting output by about 1 million barrels per day (bpd) to compensate for losses in supply from Venezuela and to address concerns about the impact of U.S. sanctions on Iranian output.

OPEC and non-OPEC producers have committed to cut output by 1.8 million bpd until the end of 2018.

— CNBC's Tom DiChristopher contributed to this report.

Correction: This story has been updated to reflect that EIA corrected its weekly release on crude stockpiles.