Oil Prices Fall Amid Growing U.S. Output
March 13 2018 - 5:30PM
Dow Jones News
By Christopher Alessi and Alison Sider
Oil prices fell Tuesday as signs of rising U.S. oil production
weighed on prices.
Light sweet crude for April delivery fell 65 cents, or 1.06%, to
$60.71 a barrel on the New York Mercantile Exchange. Brent, the
global benchmark, fell 31 cents, or 0.48%, to $64.64 a barrel on
ICE Futures Europe.
Investors are trying to gauge whether surging production from
U.S. shale formations will threaten the process of bringing oil
supply and demand into balance, and the tension has contributed to
the seesawing prices, said Gene McGillian, research manager at
Tradition Energy.
"There's a bit of a battle being fought," he said.
Prices rose in earlier trading, which analysts attributed in
part to President Donald Trump's decision to fire Secretary of
State Rex Tillerson, as Mr. Tillerson's ouster could undermine the
nuclear deal that allowed Iran to increase production.
But attention turned to signs of rising production from U.S.
shale formations, which is expected to increase by 131,000 barrels
a day in April, to a record of 6.95 million barrels a day,
according to the U.S. Energy Information Administration's latest
drilling productivity report released this week.
"The rapidly growing U.S. shale production is making it
virtually impossible for prices to rise," according to analysts at
Commerzbank.
And producers are locking in prices above $60, which will allow
them to continue pumping even as they placate investors who have
called for more financial discipline, Goldman Sachs analysts
said.
"Hedging has moved from normal levels to above-normal levels,
aided by an increase in oil futures," the analysts wrote in a
research note. "This should allow many producers to grow while
spending within cash flow during 2018."
Technical factors exacerbated the move. For most of this year,
near term oil prices have been higher than prices further into the
future -- a structure known as backwardation that is generally
considered a signal of a tight market that portends rising prices.
But that could be starting to slip: the price of oil for April
delivery has slipped below the price of the May contract.
That shift could prompt some investors to sell crude futures --
something that some hedge funds and other money managers have
already been doing.
"The oil market is looking increasingly oversupplied," said
Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd., in a
note Tuesday. "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."
New indications of growing U.S. output come as the Organization
of the Petroleum Exporting Countries -- which has been holding back
output by 1.8 million barrels a day since the start of last year --
is divided over how high the price of oil should be. Saudi Arabia,
the de facto leader of the oil cartel, would like prices at $70 a
barrel or higher, while Iran would like them closer to $60 a
barrel.
The split is driven by differing views over whether $70 a barrel
would send U.S. shale companies into a production frenzy that could
cause prices to crash.
And analysts are anticipating that the U.S. Energy Information
will report Wednesday that stockpiles of oil rose by 2.5 million
barrels last week. The American Petroleum Institute, an industry
group, said late Tuesday that its own data for the week showed a
1.2-million-barrel increase in crude supplies, a 1.3-million-barrel
fall in gasoline stocks and a 4.3-million-barrel decrease in
distillate inventories, according to a market participant.
Gasoline futures fell 0.29% to $1.8863 a gallon. Diesel futures
rose 0.49% to $1.8739 a gallon.
Write to Christopher Alessi at christopher.alessi@wsj.com and
Alison Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
March 13, 2018 17:15 ET (21:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.