Oil Down Over Concerns About Rising U.S. Output
By Christopher Alessi
LONDON -- Oil prices were mixed Tuesday, as the market digested fresh signs that U.S. crude production could cause global supply to outpace demand this year.
U.S. crude futures fell 10 cents, or 0.17%, to $59.19 a barrel on the New York Mercantile Exchange -- their lowest level since December 22. Brent, the global benchmark, rose 13 Cents, or 0.21%, to $62.72 a barrel on ICE Futures Europe, snapping a seven session losing streak.
The International Energy Agency said Tuesday that crude output from countries outside the Organization of the Petroleum Exporting Countries -- primarily driven by U.S. shale production -- should surpass global demand in 2018 and weigh on oil prices.
In its closely watched monthly oil market report, the agency called the situation "reminiscent of the first wave of U.S. shale growth" that precipitated the oil-market selloff and price crash in late 2014.
U.S. crude production last month climbed by 1.3 million barrels a day more than during the year prior, the IEA said.
"We've been very bullish on shale oil growth. Now, we see the rest of the market is coming through," said Bjarne Schieldrop, chief commodities analyst at SEB Markets. He estimates U.S. crude could surpass 12 million barrels a day next year.
Giovanni Staunovo, a commodity analyst at UBS Wealth Management, said the IEA report raised the question of whether U.S. shale supply alone could ultimately match global oil demand, a situation that would prove problematic for OPEC and other major producers.
The U.S. benchmark fell as low as $58.39 a barrel during trading Tuesday before prices pared losses and Brent turned positive.
Expectations for strong production growth from shale have already prompted a slide in oil prices. Both benchmarks have tumbled in recent weeks, with the U.S. benchmark down 10.51% from its January high and Brent down 11.07% since late January.
"We got to levels that there isn't much appetite for selling," said Ric Navy, senior vice president for energy futures at R.J. O'Brien & Associates.
OPEC and 10 producers outside the cartel, including Russia, have been holding back production by 1.8 million barrels a day since the start of last year and could risk permanently losing market share if U.S. output is able to entirely fill demand.
The OPEC-led plan, which the participants agreed to extend through the end of this year, helped to boost Brent by more than 50% in the second half of 2017 to around $70 a barrel, even as the price rise motivated shale producers in the U.S. to ramp up production.
The U.S. Energy Information Administration said Monday it expects shale production to increase to 6.76 million barrels a day in March, 1.3 million barrels a day more than last March.
Gasoline futures rose 0.68 cent, or 0.41%, to $1.6853 a gallon. Diesel futures fell 0.2 cent, or 0.11%, to $1.8369 a gallon.
On Wednesday morning, the U.S. government releases its weekly inventory report, and analysts surveyed by The Wall Street Journal expect crude oil stockpiles to have risen by 2.6 million barrels last week.
The American Petroleum Institute, an industry group, said late Tuesday that its own data for the week showed a 3.9-million-barrel increase in crude supplies, a 4.6-million-barrel rise in gasoline stocks and a 1.1-million-barrel increase in distillate inventories, according to a market participant.
--Alison Sider contributed to this article
Write to Christopher Alessi at [email protected]