Finance Oil slides as USA production shows no signs of slowing down

USA oil output has surged to over 9.5 million barrels per day from 8.5 million barrels per day in June of the previous year.

Brent crude futures fell by $0.34 to $51.42 per barrel while US West Texas Intermediate (WTI) crude futures plummeted by $0.48 to reach $48.30 a barrel, reported Reuters.

After spending much of 2016 near multiyear lows, oil prices began to rally in late November as it became clear that OPEC would finally cut production to address a long-standing oil glut. Russian Federation and 10 other non-OPEC producers agreed to cut half as much. Saudi Arabia's energy minister, Khalid Al-Falih, has said Opec will extend the deal if stockpiles are still above their five-year average. Opec's 11 members with supply targets cut output to 29.68 million bpd in February, 123,000 bpd more than required by target.

OPEC oil producers increasingly favour extending beyond June a pact on reducing crude supply to balance the market, sources within the group said, although Russian Federation and other non-members need to remain part of the initiative. While Saudi's output is still lower than its target, a rebound in its production dented sentiment in the oil market.

Meanwhile, encouraging economic data from the second biggest economy and the largest copper consumer China have raised expectations of higher demand for the commodity, which in turn have led to an increase in prices. It also expects the cartel to maintain its agreed six-month production quota at around 32.5m barrels per day (bpd) for the rest of the year. Crude oil inventories have risen by ~50 million barrels in the United States so far this year.

The broader macro backdrop has proved helpful for gold, as demand for the metal from the jewellery industry has been lackluster, hitting a seven-year low, according to the World Gold Council. So, bullish momentum in the USA stock market could partially support oil prices. But shale oil companies' cost-cutting efforts of the past few years virtually ensure that we won't see a return to $100-per-barrel oil in the next few years. Here is a closer look at hedge fund trends among oil options.

  • Todd Kelly