Oil Slides as Stock Markets Crumble, Shale Drilling Accelerates

(Bloomberg) -- Oil’s decline accelerated as the deepening slump in equity and debt markets undermined the outlook for energy demand against the backdrop of swelling U.S. crude production.

Futures fell 2 percent in New York on Monday. Stock markets tumbled around the world, and confidence crumbled in emerging markets and the riskiest forms of debt. The S&P 500 energy index fell 4.4 percent Monday, led by Chesapeake Energy Corp. and Hess Corp., which slid 7.2 percent and 6.9 percent, respectively.

Meanwhile, the number of rigs searching for crude in American shale fields jumped to the highest in more than five months last week, a harbinger of ever-greater oil output.

"This is contagious from the financial markets and the equity market, especially,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. "People worry that the demand may be not as robust over the next couple of quarters as people have been anticipating.”

West Texas Intermediate crude, the U.S. benchmark, topped $66 a barrel this year for the first time since 2014, extending a rally driven by the Organization of Petroleum Exporting Countries’ decision to extend production cuts among its members and allies. While crude’s strong start to the year was also helped by dwindling American inventories and a weakening dollar, analysts have raised concerns that a potential surge in U.S. shale output could hurt prices.

“There is more supply coming to this market, and we are entering the period of the refineries’ maintenance,” John Kilduff, founding partner at Again Capital LLC, said in a phone interview. “We are going to see a hit to demand globally that is lowering global prices today.”

WTI for March delivery dropped $1.30 settling at $64.15 a barrel on the New York Mercantile Exchange. Total volume traded was about 69 percent above the 100-day average.

Brent for April settlement lost 96 cents to close at $67.62 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $3.79 to April WTI.

U.S. drillers last week added six rigs to raise the number of machines drilling for crude to 765, the highest since Aug. 11, Baker Hughes data showed Friday. That may lead to a further increase in U.S. crude production, which breached 10 million barrels a day in November to the highest level in more than four decades.

Other oil-news:

• The S&P 500 Energy Index slumped more than 6 percent last week after Exxon Mobil Corp. and Chevron Corp., the two largest U.S. oil explorers, both missed Wall Street’s profit and output forecasts, spurring a stock sell-off among investors. European energy stocks fell on Monday.
• Short-sellers against WTI futures made an appearance for a third week, casting doubts over oil’s more than 50 percent rally since June. Short positions increased 6.3 percent to 39,127 contracts in the week ended Jan. 30, rising the most in eight weeks, according to CFTC data.
• Iran can swiftly boost oil production if OPEC decides to scrap limits on global output when the group meets next in June, Oil Minister Bijan Namdar Zanganeh said Sunday.
• Saudi Arabia kept pricing for its main crude grade to Asia unchanged for a second month as the world’s largest crude exporter responds to slower seasonal demand versus earlier expectation for a small decrease in a Bloomberg survey.

--With assistance from Perry Williams Sharon Cho and Alex Longley

To contact the reporters on this story: Meenal Vamburkar in New York at mvamburkar@bloomberg.net, Milana Vinn in New York at mvinn@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Catherine Traywick, Carlos Caminada

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