Oil fell below $61 a barrel, following its biggest rally in seven months, on speculation that growing US production will help keep global markets well supplied.
WTI futures dropped as much as 2.2 percent ahead of a government report that may show further expansion in shale output. Stockpiles in Cushing, Oklahoma, the delivery point for futures contracts, were little changed after 11 straight weeks of declines, according to a Bloo-mberg forecast. The spread between April and May futures narrowed to as little as 4 cents.
“I would not at all be surprised if we see a slight build in Cushing for the first time in 12 weeks,” Thomas Finlon, director of Energy Analytics Group Ltd., said in a phone interview. “I see certain things going on with the pipelines, they are improving, I see diminished export flows due to the narrowing of the WTI-Brent values, and we are still in turnaround season.”
The spread between the first two WTI contracts has settled in backwardation, where prompt prices are higher than those for later delivery, every day since Jan. 22. Inventories at Cushing have fallen by more than half since November to the lowest since December 2014.
The spread is “dangerously close to switching from backwardation to contango,” Bob Yawger, director of futures division at Mizuho Securities USA Inc, said in a phone interview. “That would be a very negative price development.” Brent for May settlement fell $1.21 to $64.28 a barrel on the London-based ICE Futures Europe exchange, and traded at a $3.55 premium to WTI for the same month. Explorers in America cut the number of rigs drilling for oil by four, the first decline since mid-January, Baker Hughes data showed.