Oil traded at a three-week low after a forecast on U.S. shale growth added to mounting worries that the rebalancing process is stalling.
Futures fell 0.8% in New York after 2.5% decline on Augus4 14, the biggest drop in more than five weeks.
Production at shale fields is forecast to expand to 6.15 million barrels a day in September, according to an Energy Information Administration report. This week’s U.S. stockpile report may show that crude inventories declined for a seventh week, according to a Bloomberg survey.
"As much as oil inventories have been coming down in the U.S., which is something that is seasonally normal, the fact that U.S. shale production is very resilient and is again confirmed by this EIA Drilling Productivity Report, that is something that is weighing on the market’s mind,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.
Oil in New York has been unable to hold a rally above $50 a barrel this month as investors concerns on rising global supplies outweigh cuts by the Organization of Petroleum Exporting Countries and its allies. OPEC will have to “ dig in for the long haul” to eliminate the enduring oversupply, Neil Atkinson, head of the IEA’s oil markets and industry division, said in an interview Tuesday. Even so, Citigroup Inc.’s Ed Morse says shale will win over OPEC on oil, as U.S. drillers can survive due to hedging.
“With producers unwilling for the time being to contemplate deeper supply cuts, we’re stuck in the same situation. How do you actually rebalance the market if the efforts you are making are not sufficient in light of what’s happening elsewhere?" Tchilinguirian said.
West Texas Intermediate for September delivery declined 38 cents to $47.21 a barrel at 10:06 a.m. on the New York Mercantile Exchange. Total volume traded was about 32% above the 100-day average.
Brent for October settlement dropped 53 cents to $50.20 a barrel on the London-based ICE Futures Europe exchange, The global benchmark crude traded at a premium of $2.87 to October WTI.
U.S. crude inventories probably shrank by 3.5 million barrels last week, according to the Bloomberg survey. Gasoline inventories dropped 900,000 barrels, the survey showed. Crude supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, rose 700,000 barrels last week, according to a Bloomberg-compiled forecast.
By Jessica Summers