Crude oil heads lower as shale supply forecast to increase

Jeannie Matthews
March 13, 2018

Crude oil prices could weaken if the dollar rallies and stocks weaken.

Oil prices would have plunged even lower if OPEC and Russian Federation hadn't placed a restraint on production to avoid a glut or oversupply.

Brent crude futures-where Nigeria's oil is pegged-sold at $64.77 per barrel, down 18 cents, or 0.3 percent.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished lower on Monday on renewed concerns over rising U.S. production and tight OPEC supply.

Crude's rebound since previous year is encouraging American drillers to pump even as they make efforts to be disciplined on spending, Patterson said.

ING's Patterson agrees that keeping a lid on price hikes is necessary; in an interview in Singapore he said, "We need to see prices in the short-term trade below $60 to reduce that incentive for USA producers".

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"The price level can not have been the reason: prices in excess of $60/b continue to make drilling for (shale) oil attractive, as the expenditure plans of the oil companies suggest", Commerzbank said.

Oil prices fell yesterday as investors grappled with ongoing concerns over rising U.S. output and tight Opec supply, while last week's data showing speculators cut bets on oil suggested more selling could be seen. In addition, USA production reached 10 million barrels per day for the first time since 1970. However, the US has simply filled the supply gap created by OPEC producers by ramping up production.

Energy Information Administration data shows that exports have averaged about 1.5 million barrels over the past six months, nearly double the level in the previous six months, with Asia being the biggest buyer. Asia is the biggest buyer of the supplies. While accelerating global growth and OPEC's supply cuts have helped crude oil rally since last summer, the prospect of surging U.S. production and slowing growth in the future is weighing on the commodity.

Showing the lowest level since 2015, United States crude inventories dropped 1.1 million barrels in the week of January 19, according to the Energy Information Administration (EIA).

Asia is "a market that the Middle East does not really want to give up", ING's Patterson said.

He concluded, "We think compliance is likely to slip; the deal will still officially be in place, but once we get into 2019 there's no chance that we will see some sort of deal".

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