Oil slips below $68 as rally fizzles before U.S. supply report

Jessica Resnick-Ault
Updated ·3 min read
FILE PHOTO: Oil tankers are pictured in the waters off Tuas in Singapore

By Jessica Resnick-Ault

NEW YORK (Reuters) - Oil fell to around $68 a barrel on Tuesday in a choppy session, pressured as concerns faded of a supply disruption in Saudi Arabia, which countered a pause in the dollar's rally and prospects for tighter supply due to OPEC+ output curbs.

On Monday, crude hit its highest level since the start of the coronavirus pandemic, a day after Yemen's Houthi forces fired drones and missiles at Saudi oil sites. Saudi Arabia said it thwarted the strike, however, and prices slipped as supply fears eased.

Brent crude settled down 72 cents, or 1.06%, at $67.52 a barrel. The contract pulled back after trading as high as $69.33. It reached $71.38 on Monday, the highest since Jan. 8, 2020.

U.S. West Texas Intermediate (WTI) fell $1.04, or 1.6% to settle at $64.01 a barrel. The contract hit its highest on Monday since October 2018.

"There's an expectation that we're going to see another increase in U.S. crude supplies because refineries remain shut down," said Phil Flynn, senior analyst at Price Futures group.

Last week's record decline in U.S. inventories came after the shutdown of Gulf Coast refineries due to the recent winter storm in Texas.

"The market seems to be softening on those concerns. It's had an incredible run, and it's due for a correction," Flynn said.

The latest round of U.S. inventory reports are expected to show crude stockpiles dropped. The first, from the American Petroleum Institute, is due out at 4:30 p.m. EST (2130 GMT). [EIA/S]

The EIA said it now expects U.S. crude oil production to decline by 160,000 barrels per day (bpd) in 2021 to 11.15 million bpd, a smaller decline than its previous forecast of a 290,000-bpd drop. [L1N2L71PL]

The Organization of the Petroleum Exporting Countries (OPEC) plus Russia and allies, a group known as OPEC+, decided on Thursday to broadly stick to output cuts, fueling a rally.

"Caution is advised as prices are, of course, not going to rise forever," said Bjornar Tonhaugen of Rystad Energy. "A more definite price direction is expected soon, when the U.S. weekly oil inventory reports" are released.

"Dips have been lately viewed as buying opportunities," said Tamas Varga of broker PVM. "Last week's OPEC+ meeting will ensure that the global oil balance will get tighter in the foreseeable future."

A stronger U.S. dollar, which tends to crimp investor demand for commodities, has weighed on oil, analysts said. The dollar eased from a 3-1/2-month high reached earlier.

Prices gained support from expectations of a U.S. economic recovery after the U.S. Senate approved a $1.9 trillion stimulus package. The U.S. House of Representatives must approve it before it goes to President Joe Biden for his signature.

(Additional reporting by Alex Lawler and Jessica Jaganathan; Editing by Edmund Blair, Jonathan Oatis, Jan Harvey, Paul Simao and David Gregorio)

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