Some believe we will see a return to oil in the $20s.
West Texas Intermediate on Monday settled down for a sixth straight session after the Energy Information Administration forecast that U.S. shale oil output from seven major production basins would increase by 109,000 barrels per day (bpd) in April.
WTI on Monday dropped 9 cents to settle at $48.40, while Brent rose 1 cent to $51.38 per barrel; since a week ago prices have fallen by more than 8 percent, the biggest week-on-week drop in four months.
But despite the threat U.S. shale poses to international market stability, analysts are trying to maintain a positive note: Goldman Sachs in a note states that it is "very confident" about commodity prices and maintains its price forecast of $57.50 per barrel for WTI in the second quarter.
John Kilduff, founding partner, Again Capital
Could we retrace the entirety of the gains off the February 2016 low at $26.05? It is quite possible
Gene McGillian, director of market research at Tradition Energy, speculated that the slide could be the result of traders unwinding bullish long position and may slow as those positions are unwound.
However, he added that the longs who "piled in" last year are now turning on the market "because there seems to be a realization that a six-month agreement isn't long enough to rebalance the market" - a reference to the Organization of the Petroleum Exporting Countries (OPEC) oil reduction initiative, now in its second month of implementation.
More analytical eyes are therefore viewing an OPEC extension of its six month agreement to a full year as the solution to the price doldrums: Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC that if this occurs, "we see prices above $60 before the end of the year."
Mallinson admitted that "We could see WTI go down into the mid-$40s. But we do still see that rebalancing story intact; fundamentals haven't changed dramatically this week."
But John Kilduff, founding partner of Again Capital, points out the fundamental problem with this scenario is that Saudi Arabia, which has been bearing the brunt of the cutbacks on behalf of other members who are either lagging in their commitments or ignoring them altogether, is rapidly running out of patience and has indicated that the prospect of extending the agreement is remote.
Kilduff speculated that the Saudis could, in dealing with competitive threats in their immediate vicinity as well as overseas, exploit its position as a low cost producer, abandon the agreement, and flood the market with oil: "This could get ugly, again, for oil producers, especially if the [OPEC] production accord is scrapped," he wrote in a CNBC editorial.
Kilduff added that WTI prices will likely fall back to the November lows near $42 per barrel over the next few weeks, followed by what he calls "the real" test: "Could we retrace the entirety of the gains off the February 2016 low at $26.05? It is quite possible."
Two industry sources told Reuters last week that senior Saudi energy officials informed leading U.S. oil firms in a closed door meeting at the CERAWeek convention in Houston that they should not assume OPEC will extend its cutbacks to offset rising shale production; the meeting reportedly included executives from Anadarko, ConocoPhillips, Occidental Petroleum Corp, Pioneer Natural Resources, Newfield Exploration, and EOG Resources.