Record US Supplies Push Crude Oil Below $50

Record US Supplies Push Crude Oil Below $50

"The data from the last two reports suggests they were getting nervous", Tim Evans, an energy analyst at Citi Futures Perspective in NY, said in a telephone interview. Now both want a truce. Producers scaled back this expensive method, called hydraulic fracturing or fracking, during an oil price downturn that began in 2014. Prices dropped $2.81, or 5 percent, to $53.11 on Wednesday. The lack of cohesion among OPEC members is also raising concerns. Permian shale has been one of the biggest players filling the gap left by the OPEC cutbacks.

OPEC´s secretary-general said at the conference that the organisation had "broken the ice" with shale oil producers and hedge funds who have become major players in the market.

Futures in NY headed for a sixth day of losses, dropping as much as 1.2 per cent after falling 9.1 per cent last week.

High prices encouraged development of new resources in the Soviet Union, China and the North Sea in the 1970s and 1980s, and the shale plays of North America in the 2000s and 2010s.

"Don't believe in wishful thinking that Opec would underwrite the investment of others by perennially supporting the market", he said. So far in 2017, USA oil and product inventories are up 24.9mn bbls - or 400,000 bpd.

Saudi Arabia has made the largest cuts of the OPEC countries, and as the largest exporter in the world, the country tends to drive OPEC policy.

Just ahead of the US settlement, a report from the US Energy Information Administration (EIA) forecast an increase in oil output for major US shale plays in April.

The absence of fresh hedge fund buying and the emergence of a small band of short sellers created a liquidity hole and was likely responsible for the abrupt drop in prices which started on March 8. OPEC, led by Saudi Arabia, has engineered a huge turn around in hedge fund views from bearish to bullish since September 2016.

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Germany's Commerzbank in a note cited the wave of new US crude supply as an inevitable effect of oil prices in the $50-$60 a barrel price window.

Also helping to press prices lower were bearish comments from OPEC.

All the pieces appear to be in place for a further decline in oil prices this week. "The shale oil industry in the United States has made great strides to cut costs".

As output climbs, producers are increasingly seeking protection against a price reversal.

More generally, the same antitrust prohibitions prevent OPEC from partnering with the major worldwide oil companies to manage the development of offshore and other oil supplies.

The net long position is still more than double the low of 422 million barrels set in mid-November before OPEC announced its production-cutting agreement.

And hedge funds and other investors have become enthusiastic cheerleaders for compliance, discipline and higher oil prices in the medium term.

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