Oil tumbles as production, inventories increase
Feb. 7, 2018 at 11:44 p.m.
Oil posted the biggest loss in two months Wednesday as a new report showing record crude production from U.S. fields reignited worries that supplies will swamp demand.
U.S. crude slipped 2.5 percent as a weekly report showed output from American wells jumped to 10.25 million barrels a day last week, vaulting the U.S. into the elite of world producers alongside Saudi Arabia and Russia. With production set to climb even higher later this year, the Saudi- and Russia-led alliance of other major suppliers will come under renewed pressure to reconsider self-imposed output caps aimed at eroding a glut.
"Production was up fairly strong," said Nick Holmes, an analyst at Tortoise Capital Advisors LLC in Leawood, Kansas, which manages $16 billion in energy-related assets. "There's still some trepidation on the supply side and will U.S. shale growth overwhelm the strong demand that we expect this year?"
The U.S. Energy Information Administration's weekly tally of domestic output shows the nation is probably already on par with Saudi Arabia, OPEC's biggest producer and de facto leader, and closing fast on Russia. Saudi output probably averaged 10 million a day last month and Russia pumped an estimated 10.98 million a day in 2017. The numbers aren't directly comparable because they involve differing time periods.
U.S. production has jumped 78 percent in the past six years as drilling techniques perfected to release natural gas from shale were adopted by oil explorers. With oil still trading at more than $60 a barrel, shale drillers may be inclined to boost production because they can buy hedges that lock in profits and shield them from any subsequent price declines.
The bombshell production report came a day after the government made a surprise revision to its supply outlook that forecast domestic daily output will hit 11 million barrels in November, a year sooner than previously expected.
West Texas Intermediate dipped $1.60 to settle at $61.79 a barrel on the New York Mercantile Exchange, the lowest level in four weeks. Total volume traded was about 68 percent above the 100-day average.
Brent crude declined $1.35 to end the session at $65.51 a barrel on the London-based ICE Futures Europe exchange, the lowest level since late December. The global benchmark traded at a premium of $3.96 to WTI for the same month.
"The real story is investors remain cautious with continued U.S. supply growth," said Matthew Beck, managing director of an $8 billion oil and natural gas portfolio at John Hancock Financial Services Inc. in Boston. At the same time, "you've seen a general strengthening in the U.S. dollar. That's a bit of a drag on oil prices as well."
The EIA also said Wednesday that 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.