By Catherine Ngai
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 US shale growth against softer demand for 2019.
Saudi Arabias plan to slash exports to the US next month is shoring up expectations that the Organization of Petroleum Exporting Countries and its partners will deliver on last weeks 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 US shale, which veteran crude trader Andy Hall says is making it hard to predict the markets 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 Opecs 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 Dakotas 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 dont think the headlines supported it so todays 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 Thursdays session up $1.43 at $52.58 a barrel.
Brent for February settlement fell $1.17 to $60.28 a barrel on Londons ICE Futures Europe exchange, after gaining 2.2 per cent 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 US shale explorers continue to dial back drilling, with working oil rigs falling by 4 this week to 873, according to Baker Hughes data. Thats the third decline in four weeks.
While its 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 per cent plunge, said Hall, once nicknamed “God” for his lucrative calls on crude.
Saudi crude shipments to the US next month could test the 30-year low set in late 2017 of 582,000 barrels a day, down about 40 per cent from the most recent three-month average, according to people briefed on the plans of the kingdoms state oil company. The final figure could still change, they added.