Crude Rises Amid Speculation Over U.S. Shale-Oil Supply Growth

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Brent rose for the first time in six days amid speculation about the price level that will force some producers to curb investment and limit future supply growth. West Texas Intermediate advanced in New York.

Brent futures rose as much as 1.1 percent in London, reversing an earlier loss of 1.4 percent. U.S. shale oil production will continue to grow, according to Citigroup Inc., while consultant Energy Aspects said the expansion may slow next year. Price competition intensified in the Organization of Petroleum Exporting Countries after Iraq, the group’s second-largest producer, reduced its Basrah Light crude price for January to the lowest in at least 11 years.

Crude is trading in a bear market as the highest U.S. production in three decades exacerbates a global glut. Saudi Arabia, which led OPEC’s decision to maintain rather than cut output at a Nov. 27 meeting, last week offered supplies to its Asian customers at the deepest discount in at least 14 years.

“After yesterday’s solid fall, it’s no surprise that oil is taking a small breather,” Bjarne Schieldrop, chief commodities analyst at Oslo-based SEB, said by e-mail. “The market will remain volatile until it finds the Goldilocks price that dampens U.S. shale oil supply growth, stimulates the global economy and still lets OPEC members survive.”

Brent for January settlement climbed as much as 74 cents to $66.93 a barrel on the London-based ICE Futures Europe exchange before trading at $66.47 at 1:41 p.m. local time. It slid $2.88 to $66.19 yesterday, the lowest close since September 2009. The European benchmark crude traded at a premium of $2.95 to WTI. Prices are down 40 percent this year.

Shale Production

WTI for January delivery increased 52 cents, or 0.8 percent, to $63.57 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $2.79 to $63.05 yesterday, the lowest close since July 2009. Total volume was about 35 percent above the 100-day average for the time of day.

The U.S. oil boom, driven by a combination of horizontal drilling and hydraulic fracturing, has unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota. Production increased to 9.08 million barrels a day through Nov. 28, the fastest rate in weekly records that started in January 1983, data from the Energy Information Administration showed.

Decline Rate

U.S. growth is at risk of slowing in the second half of next year and in 2016, Amrita Sen, chief oil market analyst at consultant Energy Aspects, said at a Platts conference in Dubai. Market fundamentals don’t warrant a price as low as $60 a barrel and WTI will average in the “high sixties” in the first half of next year, with Brent in the “low seventies,” she said.

Shale production will keep growing because the rate of decline from wells has been overstated, Ed Morse, head of commodities research at Citigroup Inc., said at the same conference.

ConocoPhillips plans capital expenditure of $13.5 billion in 2015, down about 20 percent from this year, according to a statement yesterday. The reduction primarily reflects lower spending on major projects, several of which are nearing completion, as well as deferral of spending on some North American shale plays, it said.

Mideast Competition

“The Iraqi cut is just an indication of the ongoing ‘price war’,” Eugen Weinberg, head of commodities research at Frankfurt-based Commerzbank AG, said by e-mail. “OPEC is currently thinking more in terms of market share and doesn’t care so much about pricing.”

Iraq’s Oil Marketing Co. will sell Basrah Light to Asia at $4 a barrel below the average of Middle East benchmark Oman and Dubai grades, the steepest discount since Bloomberg started compiling the data in August 2003. The company reduced prices to U.S. buyers by 30 cents and marked up shipments to Europe by 10 cents, the list obtained by Bloomberg News showed.

Middle East producers including Iraq, Iran and Kuwait typically follow Saudi Arabia’s lead when setting crude export prices. The kingdom is the biggest member of OPEC, which supplies about 40 percent of the world’s crude.

Saudi Aramco, the state-run oil company, lowered the official selling price for Arab Light to Asia next month to $2 a barrel less than the average of Oman and Dubai, the company said by e-mail Dec. 4. That was $1.90 wider than December and the biggest discount in data compiled by Bloomberg since June 2000.

“Oil prices will stay around the current level of $65 for six or seven months until OPEC changes its production policy, or recovery in world economic growth becomes more clear, or geopolitical tension arises,” Nizar Al-Adsani, Kuwait Petroleum’s chief executive officer, said yesterday. The nation is the third-largest of OPEC’s 12 members.

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