Oil Loses Ground as U.S. Shale Growth Undermines OPEC+ Cuts

(Bloomberg) -- Oil settled below $52 a barrel in New York, more than a $1 lower than where it ended a week ago after OPEC and its allies announced output cuts, as traders weighed incremental U.S. shale growth against softer demand for 2019.

Saudi Arabia’s plan to slash exports to the U.S. next month is shoring up expectations that the Organization of Petroleum Exporting Countries and its partners will deliver on last week’s promise to curb production by 1.2 million barrels a day. Yet the oil market appears to have largely ignored cuts agreed to just a week ago, concerned by the relentless growth from U.S. shale, which veteran crude trader Andy Hall says is making it hard to predict the market’s direction.

“The market may have to wait for OPEC to get the job done this time, given the perception that OPEC+ was unable to cut enough to reduce the surplus expected,” said Michael Cohen, head of energy markets research at Barclays Plc in New York.

Crude has traded in the narrowest range since early 2017 so far this month as investors assess the production cuts pledged by the so-called OPEC+ coalition. The International Energy Agency said unplanned outages in OPEC’s member states may double its intended curbs. Still, the market is concerned that breakneck production from the Permian of West Texas and New Mexico and North Dakota’s Bakken shale fields may quash any price rallies.

"We really had a blowout day yesterday with the strong rally," said Bob Yawger, director of the futures division at Mizuho Securities USA. "I don’t think the headlines supported it so today’s move is more so a pullback to compensate."

West Texas Intermediate for January delivery fell $1.38 to settle at $51.20 a barrel on the New York Mercantile Exchange. The contract closed Thursday’s session up $1.43 at $52.58 a barrel.

Brent for February settlement fell $1.17 to $60.28 a barrel on London’s ICE Futures Europe exchange, after gaining 2.2 percent on Thursday. The global benchmark crude settled at an $8.81-a-barrel premium to WTI for the same month.

Concerns about stronger production persist even as U.S. shale explorers continue to dial back drilling, with working oil rigs falling by 4 this week to 873, according to Baker Hughes data. That’s the third decline in four weeks.

Market Uncertainty

While it’s become more difficult for traders to assess the market, those seeking to pick a trend should probably bet that oil will rebound from its recent 30 percent plunge, said Hall, once nicknamed “God” for his lucrative calls on crude.

Saudi crude shipments to the U.S. next month could test the 30-year low set in late 2017 of 582,000 barrels a day, down about 40 percent from the most recent three-month average, according to people briefed on the plans of the kingdom’s state oil company. The final figure could still change, they added.

--With assistance from James Thornhill, Sharon Cho and Grant Smith.

To contact the reporter on this story: Catherine Ngai in New York at cngai16@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Mike Jeffers, Christine Buurma

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