Crude declines as growth in shale production scares investors

By Jessica Summers on 2/8/2018

NEW YORK (Bloomberg) -- Crude resumed its decline as growth in U.S. shale output acts as a downside price risk.

U.S. weekly crude production surged to a record 10.25 MMbpd. American production is set to climb even higher this year and breach 11 MMbpd in November, reaching that level a year earlier than expected, according to the U.S. government. Nationwide weekly output is now above Saudi Arabia’s production of about 10 MMbpd last month.

Futures earlier rebounded by as much as 0.5% in New York, spurred by weakness in the dollar, which added support to commodity prices. The U.S. benchmark also bounced off its 50-day moving average, a key technical level. Yet, as the dollar pared its losses and with U.S. oil output sitting at a record-high, prices declined.

“That enormously steep rebound in Lower 48 production is what’s weighing on the market,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said by telephone. “The market is not entirely sure how to digest this information.”

West Texas Intermediate for March delivery fell 41 cents to $61.38/bbl at 10:13 a.m. on the New York Mercantile Exchange, after earlier rising to as high as $62.09. Total volume traded was about 44% above the 100-day average.

Brent for April settlement declined 52 cents to $64.99/bbl on the London-based ICE Futures Europe exchange, and traded at a $3.84 premium to WTI for the same month.

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, fell as much as 0.3%. A weaker greenback boosts the appeal of commodities as an investment.

“We’ve seen the dollar move down,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone. At the same time, oil “stopped at the technical level, support at the 50-day.”

U.S. oil output increased for a fourth week, up by 332,000 bpd last week, EIA data showed. Crude in the nation’s storage tanks and terminals increased by 1.9 MMbbl, while gasoline and distillate stockpiles also expanded, the data showed.

“U.S. crude production should keep hitting new highs throughout 2018,” Citigroup analysts including Ed Morse wrote in a Feb. 7 note.

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