Oil Dips on Demand Worries as U.S. Shale Hits Record Production Levels


While bullish speculators would love to see the price of oil rise further, such increases need to be backed by strong demand alongside a supportive economy. Unfortunately, both of those are nowhere to be seen with U.S. domestic shale supplies continue to hit record levels and worries over a future recession have never been stronger.

Even as OPEC nations continue to promise supply cuts, it no longer seems possible that this will be enough to raise prices any further than their current levels, which are already near multi-month highs.

New York-traded West Texas Intermediate crude went down around 49 cents, or 0.8 percent today, although it did hit it’s five-month high of $64.79 last week. While the world’s oil benchmark, Brent Crude, fell 30 cents today, or around 0.4 percent. Its current price at $71.25 falls just under it’s November high of $71.78, which is matched last week.

While overall prices for oil have been restored to healthy levels for many oil producers to operate profitably, it’s unlikely prices will go much higher. “CTAs still have a ton of bullets as they are only 30% long of the maximum according to people who track it and that’s a risk to more upside. But the price action needs to fuel this buying and we need to reinforce the market with new highs, or the shorter-term systems will start to turn into a market that is not very short,” said Scott Shelton, energy futures brokers at ICAP. “I have heard time and time again that the ‘physical markets are strong,’ but it may not matter if we turn lower as the money flows out.”

This weekend, Russian Finance Minister Anton Siluanov alluded that Moscow and OPEC might decide to boost output to fight for market share against the United State’s growing energy output, although this could lead to prices falling to record lows. “The risks of an upcoming global recession are very high,” said the minister. “We are ready for a change in global energy prices – we have prepared the budget, the reserves, the balance of payments. We have created this kind of system.”

The U.S. Energy Information Administration (EIA) also said today that U.S. crude oil output from it’s seven major shale formation is expected to increase by around 80,000 barrels per day in May. This would lead to the nation breaking another record, hitting 8.46 million barrels per day in production. Most of this increase came from the Permian Basin of New Mexico and Texas, which is adding 42,000 barrels per day.

Additionally, U.S. natural gas output is projected to increase to 79.8 billion cubic feet per day according to the agency, another record-hitting figure. That would be up 0.9 billion cubic feet per day over April’s forecast and would be the 16th consecutive monthly increase in natural gas output. The EIA added the producers drilled 1,388 wells and completed 1,392, a figure not seen since January 2015.

Overall, oil bulls have enjoyed a solid run so far in 2019, but by most predictions, isn’t going to last for to long. Don’t be surprised if we see a downturn in the energy markets in the future.