Worry Over Rising U.S. Output Causes Crude to Drop 1.1 Percent

Monday March 12, 2018

The great thing about so many conflicting predictions within the analytical community about the crude market is that no matter what happens, a good portion of that community will be proven correct: and so on Monday those who worried about the impact of rising U.S. shale output were vindicated by a 1.1 percent drop in West Texas Intermediate, the result of speculators cutting bullish bets on oil.

WTI settled down 68 cents to $61.36 per barrel while Brent fell 50 cents to $64.99 per barrel.

CNBC noted that hedge funds and money managers have pared their bullish wagers on WTI, with long positions falling last week for the first time in three weeks; meanwhile, gross short positions (bets that prices will fall) on the New York Mercantile Exchange climbed to their highest level in nearly a month.

Investors are said to be weighing rising U.S. output (which continues to climb even though rig counts were cut slightly last week) and supply against the possibility that the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers will maintain its supply cuts this year and possibly even next.

Gene McGillian, director of market research at Tradition Energy, pointed out that "The market continues to flip back and forth on the idea that increased global demand and a production cut is going to support prices... but U.S. production, and North American production levels in general, is going to negate a lot of the impact of that."

Jim Ritterbusch, president of Ritterbusch and Associates, said in a note that "We are maintaining a bearish trading stance in anticipation of a range in nearby WTI between about $58 and $63."

He went on to state that while Friday's favourable job data from the U.S. and the first decline in rig counts in two months "might suggest a test of the high side of this expected range first, we still view downside price risk exceeding that to the upside."

Last week, Darren Woods, chief executive officer for Exxon, speculated that if U.S. production continues to rise and the economy suddenly falters, crude could tumble back to $40 per barrel - because economic expansion is what is "really driving demand at levels much higher than recent history."