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Oil extends slide as record US output sparks supply glut fears

Feb 08 2018 09:47
Sharon Cho, Bloomberg

Singapore - US shale is once again threatening to derail oil’s recovery, with futures on course for their longest run of declines in nine months after American output hit new highs.

Futures fell as much as 0.7% in New York, falling for a fifth day, after government data showed US crude production jumped to a record 10.25 million barrels a day last week. Investors were also left disappointed after data showed American crude stockpiles rose, countering a separate industry report which pointed to a decrease.

The US continues to be the biggest adversary to the Organisation of Petroleum Exporting Countries’ efforts to alleviate a global oversupply.

American production has now eclipsed Saudi Arabia’s, and Citigroup expects it to breach 11 million barrels a day by the end of summer, earlier than the US government’s forecast for November. With futures trading at about double what they were in early 2016, fear is growing that higher prices will spark further increases in shale supply.

“Many investors have cleared their positions as a result of what we call ‘supply fears,’ ” Kim Kwangrae, a commodities analyst at Samsung Futures, said by phone from Seoul. “Now inventories are rising again, more eyes are on US production data” for signs on if the global supply glut may worsen.

New highs

West Texas Intermediate for March delivery traded at $61.71 on the New York Mercantile Exchange, down 8 cents at 3:20 pm in Singapore after its biggest drop in two months on Wednesday. Prices are heading toward their longest stretch of declines since April, on total volume about 56% above the 100-day average on Thursday.

Brent for April settlement was little changed at $65.52 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $4.02 to April WTI.

US oil output increased for a fourth week, the Energy Information Administration data showed on Wednesday. American crude in storage tanks and terminals increased by 1.9 million barrels last week as refiners shut or limited operations to conduct seasonal maintenance. Gasoline and diesel stockpiles expanded as well.

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

Other oil-market news:

• China’s crude imports surged to a record as independent refiners boosted shipments after the government expanded the amount of overseas purchases they can make.

• Shipments averaged about 9.61 million barrels a day in January.

• The CBOE/Nymex Oil Volatility Index rose 4.7% on Wednesday, capping its biggest four-day gain since March 2017.

• The allure of the Permian Basin is drawing more than just drillers.

• Pipeline operators are bulking up there as well.

• Shale drillers, rolling in cash as oil recovers from the worst price slump in decades, are spreading the joy to shareholders.

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commodities  |  markets  |  oil
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