Oil Down Over Concerns About Rising US Output – Wall Street Journal

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LONDON—Oil prices slid during trading Tuesday afternoon in Europe, as the market digested fresh signs that U.S. crude production could cause global supply to outpace demand this year.

Brent crude, the global benchmark, was down nearly 1% at $61.99 a barrel on London’s

Intercontinental Exchange
.

On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 1.25% at $58.54 a barrel.

Prices had initially edged up in morning trading on the back of a weaker U.S. dollar, before declining over ongoing concerns about U.S. output.

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.

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.

Related

  • Shale Output Hasn’t Grown This Fast Since Oil Was at $100
  • OPEC Revises Crude Supply Forecasts on Higher U.S. Production

Pump jacks drill for oil in the Monterey Shale, California.


Photo:

lucy nicholson/Reuters

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.

The fresh data comes on the heels of an oil-market selloff last week. That was initially triggered by the equity market rout, but oil prices maintained losses even as global stocks started to gain again.

“There is good reason for the price weakness, as U.S. shale oil production is still rising rapidly,” analysts at

Commerzbank

wrote in a note Tuesday.

Among refined products, Nymex reformulated gasoline blendstock—the benchmark gasoline contract—was down 1.28%, at $1.68 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $543.25 a metric ton, down 2.2% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

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