Oil dips, hits 11-day low as U.S. shale output seen surging
NEW YORK - Oil prices fell on Tuesday, touching their lowest in 11 days as bearish positions were fueled by a U.S. government report which said shale oil output in May was expected to post the biggest monthly increase in more than two years.
Graphic: U.S. oil could drop to $52.17 - http://fingfx.thomsonreuters.com/gfx/ce/3/1351/1351/Pasted%20Image.jpg
The oil market has been caught in a tug-of-war between forecasts that OPEC production will remain at reduced rates and bearish reports suggesting U.S. production is rising, preserving a supply overhang in the market.
"We're right at the battle ground: the bulls and the bears are facing off against each other, trying to make their last stand," said John Kilduff, Partner at Again Capital in New York. Tuesday's market performance was the latest example, with U.S. West Texas Intermediate crude touching a low of $52.10 before rising on suggestions that Saudi Arabia is holding crude off the market.
Global benchmark Brent crude futures settled down 47 cents at $54.89 a barrel. Brent was down 28 cents, trading at $55.08 a barrel by 3:24 p.m. EDT. Brent touched $54.61 intraday, its lowest since April 7.
U.S. WTI futures fell 24 cents, settling at $52.41 a barrel. Their intraday low was $52.10, also the weakest since April 7.
At a time when OPEC and other producing nations have been trying to cut output, government drilling data showed U.S. shale production next month was set to rise to 5.19 million barrels per day (bpd). Output from the Permian play, the country's largest shale region, was expected to reach a record 2.36 million bpd.
More barrels could be on their way to market from U.S. shale fields as financial companies are investing billions in production, a Reuters analysis showed.
Members of the Organization of the Petroleum Exporting Countries are cutting oil production by 1.2 million bpd from Jan. 1 for six months, the first reduction in eight years.
"The battle between the 'sheiks and the shale oil producers' is far from decided ... with all attempts by OPEC to achieve a lasting production deficit on the oil market being torpedoed by non-OPEC producers – first and foremost the U.S.," analysts at Commerzbank wrote.
The energy minister OPEC member the United Arab Emirates said he saw healthy oil demand growth this year and believed inventories would fall, but it would take more time to rebalance the market.
OPEC leader Saudi Arabia tightened February crude oil exports to the lowest since mid-2015, official data showed on Tuesday.
A preliminary Reuters poll showed analysts expected data to show U.S. crude stocks fell in the week to April 14, building on a surprise decline the previous week. [EIA/S]
Analysts said they expected the data to show crude inventories fell around 1.5 million barrels last week.
"We've fought to a draw today and the inventory report will help break us out of this logjam," Kilduff said. REUTERS