Oil Slides on concerns over US Output
- Author: Zachary Reyes Mar 21, 2017,
Mar 21, 2017, 7:56
Oil fell around 1 percent on Monday as investors continued to unwind bets on higher prices after record cuts last week because of concerns that growing USA oil output could hamper an OPEC-led production cut deal.
Bargain-hunting buying and a continuing weakening of the US dollar since the US Federal Reserve signalled a relatively dovish approach on further interest rate hikes through 2017 after effecting the latest increase March 15 was helping crude futures, battered for almost two weeks, cautiously tick up early Tuesday in Asia. On the New York Mercantile Exchange, West Texas Intermediate futures were trading.
Growing U.S. production is playing into concerns that a global production cut deal by the Organization of the Petroleum Exporting Countries and non-OPEC members is having less of an impact.
In the seven days to 17 March, the sector saw 14 rigs added, bringing the total tally to 631, the highest level since September 2015.
It is no longer news that OPEC has succeeded in getting its member nations to agree to cut their crude oil output in a bid to end the supply glut that has kept oil prices depressed for much of the last three years.
"It was obvious that with a reversal in prices, the U.S. shale production was going to pick up". The supply cuts triggered positive vibes for crude oil and investors were looking forward to booking gains once the output cuts restore a sense of balance to the market. However, if OPEC doesn't extend its deal, it could pressure crude oil prices. After forecasting production declines for 2017, US federal data instead show steady gains and production so far in March has been at around 9 million barrels per day.
Energy companies working in shale oil basins in the United States have adapted to lower price points so that, once the market does recover, they're more efficient at returning to work. In the meantime, Iran has the right to boost oil output by just 90,000 bpd under the terms of the deal to curb excessive production by members of the Organization of Petroleum Exporting Countries (OPEC) and a number of major crude oil producers outside the cartel, including Russian Federation.
At a Vienna meeting in May, OPEC will decide on whether to ditch, continue or widen production cuts.