Crude resumes slide as shale threat to OPEC-led restraint grows

Futures fell as much as 1.5% in New York on Tuesday. Although oil inventories in the world’s strongest economies posted their steepest drop in more than six years in December, escalating output from U.S. shale fields may reverse the work OPEC and partners such as Russia have undertaken since late 2016 to shrink the oversupply, the International Energy Agency said.

It’s “this rush of shale crude oil production that’s finally being acknowledged by the various agencies and hitting the market in a big way,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by telephone. “The fundamentals are all of a sudden back in focus and they’re not looking great for the oil producers.”

Even though the Organization of Petroleum Exporting Countries posted record compliance with self-imposed production limits last month, aggressive drilling by American shale explorers may swamp the market with crude, the IEA concluded in a report released on Tuesday. The Paris-based group also predicted America may unseat Russia as the world’s top crude producer by the end of this year, echoing a similar forecast by U.S. government analysts.

Meanwhile, Iraqi Oil Minister Jabbar al-Luaibi said Tuesday that the cartel will discuss in December whether to extend their supply accord into a third year.

'Good reasons'

West Texas Intermediate crude for March delivery slipped 81 cents to $58.48/bbl at 9:52 a.m. on the New York Mercantile Exchange.

Brent for April settlement fell 69 cents to $61.90 on the London-based ICE Futures Europe exchange. The global benchmark traded at a $3.55 premium to April WTI.

“There are good reasons for the price weakness, as U.S. shale oil production is still rising rapidly,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

Meanwhile, in the U.S., crude stockpiles probably climbed by 3 MMbbl last week, according to a Bloomberg survey. In Cushing, Okla., home to the biggest American pipeline hub, crude inventories probably decreased by 1.7 MMbbl last week, according to a forecast compiled by Bloomberg.

Oil equities

The industry-funded American Petroleum Institute is scheduled to release its weekly tally of oil and fuel inventories on Tuesday, followed by the Energy Information Administration’s count a day later.

Shares of U.S.-traded oil and natural gas producers on the S&P 500 Index fell 0.5%, led lower by Baker Hughes, Devon Energy Corp. and Hess Corp.