The oil rally following OPEC’s deal has disappeared.

Futures on both sides of the Atlantic dropped to their lowest since late November on growing signs that the group’s production cuts are failing to clear a surplus of crude. Oil stocks felt the pinch, with the S&P Oil & Gas Exploration and Production Index slumping as much as 4.9 per cent Thursday to the lowest since August.

"Evidence is mounting that the OPEC agreement, and the market’s reaction, were much ado about nothing," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone.

U.S. crude output has risen to the highest since August 2015 as shale drillers add rigs every week. In response, the Organization of Petroleum Exporting Countries is likely to extend the 1.2 million barrel-a-day cut agreed to in November for six months, according to Nigerian Oil Minister Emmanuel Ibe Kachikwu. OPEC will meet May 25 in Vienna to make a decision. Russia is said to support prolonging the curbs, according to a government official.

West Texas Intermediate for June delivery fell US$2.30, or 4.8 per cent, to US$45.52 a barrel at on the New York Mercantile Exchange. It’s the lowest close since Nov. 29, the day before the OPEC accord. Total volume traded was about 56 per cent above the 100-day average.

Brent for July settlement dropped US$2.41, or 4.8 per cent, to US$48.38 a barrel on the London-based ICE Futures Europe exchange, falling below US$50 for the first time since March 22. It was also the lowest since Nov. 29. The global benchmark crude ended the session at a US$2.48 premium to July WTI.

Lost Faith

"The market appears to have temporarily lost faith in ever seeing an impact of the OPEC cuts on inventories," Michael Cohen, head of energy commodities research at Barclays Plc in New York, said by telephone. "We disagree and think that OPEC will manage to extend the cuts and we’ll see inventories fall in the second half of the year."

U.S. crude output rose by 28,000 barrels a day last week for the longest run of gains since 2012, according to Energy Information Administration data. Crude stockpiles fell by 930,000 barrels, compared with the median estimate for a 3 million-barrel drop in the Bloomberg survey. Refineries processed 17.2 million barrels of crude a day last week as they utilized 93.3 per cent of their capacity, both down for the first time in seven weeks, according to the agency.

"You can only do so much with supply," Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at U.S. Bank, which oversees $136 billion in assets, said by telephone. "We need to see demand increase as well. China might be hitting a speed bump, which makes it hard to be positive about demand."

U.S. gasoline demand averaged 9.22 million barrels a day in the four weeks ended April 28, down 0.2 per cent from the prior period and 2.7 per cent lower than during the same period a year earlier, according to EIA data.

"Yesterday’s report showed that U.S. gasoline demand is pretty weak," Mike Wittner, head of commodities research at Societe Generale SA in New York, said by telephone. "This is really starting to weigh on crude."

Gasoline futures for May delivery dropped 3.4 per cent to US$1.4812 a gallon, the lowest close since Nov. 29. May diesel tumbled 4.2 per cent to US$1.4123 a gallon, the lowest settlement since Nov. 14.