Oil prices fall on relentless rise in United States crude output

Mae Love
March 13, 2018

The U.S. report of larger than expected supply reports from last week is looking to extend this week according to most market speculations.

Oil prices were down on Tuesday morning in Asia amid continued concerns over rising US output and tight supply from the Organization of the Petroleum Exporting Countries (OPEC).

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Monday.

The reduction came as gross short positions on the New York Mercantile Exchange climbed to their highest level in almost a month.

"It appears that money managers are getting rid of their long positions and this is why the front-end spreads of the two main crude oil futures contracts have been drifting lower lately". Only Russia pumps more, at almost 11 million bpd. Both the Brent and WTI saw a massive decline as they enter the market this week with a solid 1% decline.

"The rapidly growing US shale production is making it virtually impossible for prices to rise", according to analysts at Commerzbank.

Crude production from seven major US shale plays is expected to see a climb of 131,000 barrels a day in April to 6.954 million barrels a day, according to a monthly report from the Energy Information Administration released Monday (http://www.marketwatch.com/story/US-shale-oil-output-forecast-to-climb-by-131000-barrels-a-day-in-april-eia-2018-03-12).

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The Organization of the Petroleum Exporting Countries (OPEC), together with a group of other producers led by Russian Federation, has been withholding production since the start of 2017 to prop up prices.

In oil markets, USA energy companies last week cut oil rigs for the first time in nearly two months, with drillers cutting back four rigs, to 796, Baker Hughes (GE.N) energy services firm said.

Crude oil prices are lower today after falling yesterday.

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". At stake is OPEC's production limits, which are among factors helping the oil market's monthslong recovery. The most bullish scenario will be a weaker U.S. Dollar and higher equity prices.

Bijan Zanganeh, oil minister for Iran, said over the weekend that OPEC could agree in June to begin easing current oil production curbs in 2019; however, he added that working with the cartel to thwart the Americans is vital because "If the price jumps [to] around $70 .it will motivate more production in shale oil in the United States".

In other trading, April gasoline fell 0.5% to $1.894 a gallon, while April heating oil fell 1.2% to $1.865 a gallon. The consensus forecast by economists is for inflation of 1.8% in February, thus keeping its level from January.

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