Americas News
Fear Over U.S. Taking Advantage of OPEC Extension Prompts Crude Price Dip
The latest seesaw effect of the Organization of the Petroleum Exporting Countries (OPEC) announcing the extension of its production cutbacks through 2018 was a 1.5 percent price drop in crude on Monday: West Texas Intermediate dropped 88 cents to $57.48, and Brent dropped $1.30 to $62.43.
And the reason for the slide was fear over something everyone from analysts to producers and OPEC allies (most notably Russia) warn could be a likely consequence of the extension: U.S. shale producers taking advantage of the resulting market shortcomings and higher prices by escalating their own output.
The latest Baker Hughes data shows that the United States added two oil rigs in the week to December 1, bringing the total count to 749, the highest since September.
Brian Battle, director at Performance Trust Capital Partners, told Bloomberg television that he regards U.S. shale as "a wild card" that "can come in and fill any [OPEC supply] gap as soon as you get to $60 and higher."
Battle also openly scoffed at the notion that the extension of OPEC's output cutbacks would be free of the cheating that characterized the first round of cuts, despite the cartel's persistent reports of high compliance and promises that compliance will continue throughout 2018.
For his part, John Kilduff, founding partner at Again Capital, remarked, "It's been a steady climb on the production side here in the U.S., which continues to eat away at OPEC's hopes for balancing this market; they are sowing the seeds for the deal unraveling just because the way it's promoting shale output."
Monday's crude price drop was also accompanied by scrutiny over the extension deal itself: "Market reaction has been positive so far [but] there are only two worrying aspects ... one is that Iraq's indiscipline has not been discussed, at least not publicly," said Tamas Varga, strategist for PVM Oil Associates, in reference to Iraq's poor past compliance.
Varga added, "The second is OPEC's own forecast for next year: they are by far the most bullish on 2018, with the annual call on their oil at 33.42 million barrels per day (bpd).
"This compares with the Energy Information Administration estimate of 32.70 million bpd and IEA prediction of 32.38 million bpd."
But just like everything else connected with the crude trading market, concerns ebb and flow, and early Tuesday saw oil rise in early Asian trade, based on expectations of a drop in U.S. crude stockpiles.
Specifically, seven analysts from the American Petroleum Institute and the EIA estimated, on average, that crude stocks would fall 3.5 million barrels in the week ended December 1; their predictions are in advance of official government inventory data scheduled to be released on Wednesday.
Last week, Abhishek Kumar, senior energy analyst at Interfax Energy Global Gas Analytics, warned that there could be conflict with the U.S. when he declared that "countries involved in the [OPEC] deal will keep a close eye on U.S. oil production and will not shy away from taking appropriate steps to counter its impact."
