* Rosneft tests capacity to restore output: Renaissance Capital
* West Texas Intermediate heading for a second week of declines

By Tsuyoshi Inajima and Alex Longley

(Bloomberg) —

Oil in New York headed for a second weekly loss as U.S. output surged, pushing the American marker to near its weakest level in more than three years against global benchmark Brent.

West Texas Intermediate futures are down 2.1 percent this week as pipeline bottlenecks in the Permian Basin add to pressure from unprecedented levels of U.S. production. Brent crude is 0.9 percent higher this week, even as investors await news on whether OPEC and its allies will agree to boost production. The dollar strengthened after U.S. jobs data beat expectations, which also weighed on oil prices.

Hedge funds invested in U.S. oil are betting pipeline bottlenecks will make Texas crude even cheaper. The constraints mean WTI is unable to keep up with Brent, which climbed last month following President Donald Trump’s decision to reimpose sanctions on Iran, and as Venezuelan output plunged amid an economic crisis. The difference is giving trading giants an opportunity to export millions of barrels as shale output continues to surge.

“The U.S. crude complex has been recently undermined by a well-documented and potent cocktail of logistics constraints,” PVM Oil Associates analyst Stephen Brennock wrote in a report. “The capitulation of the WTI-Brent arbitrage is the market giving its clearest signal yet that U.S. pipeline capacity is being maxed out.”

Also at the forefront of investors’ minds is OPEC and its allies’ next step on their agreement to curb output. Saudi Arabia and Russia said last week that they are considering boosting production to ease potential supply disruptions in Iran and Venezuela. The proposal is yet to be approved by other partners, and officials from some nations have said they aren’t in favor.

WTI for July delivery traded at $66.57 a barrel on the New York Mercantile Exchange, down 47 cents, at 9:03 a.m. local time, after dropping 1.7 percent on Thursday. Total volume traded Friday was about 11 percent above the 100-day average. The Bloomberg Dollar Spot Index rose 0.2 percent.

Brent for August settlement fell 47 cents to $77.12 a barrel on the London-based ICE Futures Europe exchange. July futures expired Thursday after adding 9 cents to $77.59 a barrel. The global benchmark is at a $10.75 premium to WTI, after earlier reaching as much as $11.56 and having settled at the widest since February 2015 on Thursday.

Surging Production

U.S. crude production rose to 10.77 million barrels a day, the highest in weekly data going back to 1983, the Energy Information Administration said Thursday. Output has risen for 14 straight weeks as drillers put more rigs to work.

Still, the incentive to export means the EIA report also showed a surprise decline of 3.62 million barrels in nationwide inventories. Crude grades on the U.S. Gulf Coast are surging, with prices in East Houston the strongest versus WTI since at least 2016 and Light Louisiana Sweet the strongest in three years.

To read about the global oil benchmarks being pulled apart, click here

Other oil-market news:

* Rosneft PJSC is testing its capacity to bring back production it cut under the deal between Moscow and OPEC by boosting output this week by about 70,000 barrels a day, Renaissance Capital said.

* Goldman Sachs Group Inc. has shaken off its commodities woes, making more money in the sector in the first few months of this year than it did in all of 2017, according to people familiar with the matter.

* Long-established relationships between the world’s most important oil prices are being strained by conflicting forces across the globe.

* Energy ministers from Saudi Arabia, the United Arab Emirates and Kuwait plan to meet on Saturday to discuss OPEC matters.

To contact the reporters on this story:
Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net;
Alex Longley in London at alongley@bloomberg.net

To contact the editors responsible for this story:
Pratish Narayanan at pnarayanan9@bloomberg.net