Oil Recovers From 1-Week Low as Supplies Said to Drop

  • IEA chief sees ‘significant’ boost to U.S. shale output
  • OPEC has to wait to decide on extending output cuts: Barkindo

Crude Slides on U.S. Oil Supply Predictions

Oil edged higher from a one-week low in New York as an industry report that U.S. crude supplies fell last week.

Supplies dropped 5.04 million barrels, the American Petroleum Institute was said to report. Futures settled 2.7 percent lower after IEA Executive Director Fatih Birol said that higher oil prices will trigger a “significant” boost in U.S. shale output as OPEC and other producers rein in supply. A day earlier, Saudi Arabia said deeper-than-planned production cuts and robust demand were helping the market re-balance. Price declines eased after OPEC Secretary General Mohammad Barkindo said that OPEC will have to wait to decide whether the six-month production deal will be extended. 

Oil has gained since the Organization of Petroleum Exporting Countries and 11 other nations agreed late last year to trim supply, but a rally above $55 a barrel was short-lived amid concern rising prices would spur more production elsewhere. While producers from Saudi Arabia to Russia have signaled they’re implementing the reductions, U.S. shale output next month is forecast to climb to the highest level since November.

"At current prices you’re seeing an increase in the rig count, which will increase U.S. production," Adam Wise, who helps run a $7 billion oil and natural gas bond and private equity portfolio at John Hancock in Boston, said by telephone. "We’re going to see headline-driven movement from day-to-day, but the long-term trend remains higher."

West Texas Intermediate for February delivery fell $1.40 to $51.08 a barrel on the New York Mercantile Exchange. It’s the lowest close since Jan. 10. Total volume traded was near the 100-day average. Prices are up 80 percent from a year earlier. WTI traded at $51.37 at 4:40 p.m. in New York after the API report.

Brent for March settlement declined $1.55, or 2.8 percent, to $53.92 a barrel on the London-based ICE Futures Europe exchange, closing at a $2.03 premium to WTI for the same month.

Strong Reaction

“U.S. shale-oil production will definitely react strongly,” the IEA’s Birol said Wednesday in a Bloomberg Television interview in Davos, Switzerland. At $56 to $57 a barrel, “a lot of shale plays in the United States would make perfect sense to produce.”

See also: Oil bosses in Davos see shale rebound capping 2017 price surge

It’s premature to say whether OPEC should continue cuts once the accord expires, Barkindo said in Bloomberg television interview in Davos. OPEC and Russia may not need to extend the curbs when they expire in June, Saudi Arabia’s Energy Minister Khalid Al-Falih said on Monday.

"We’re going to continue to chop around in this area until there’s further evidence that OPEC is complying with its promised cuts," Kyle Cooper, director of research with IAF Advisors in Houston, said by telephone.

U.S. crude stockpiles dropped by 1 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Thursday.

Stockpiles are at 483.1 million barrels, the highest seasonal level in more than three decades, according to weekly data compiled by the EIA since 1982.

Oil-market news:

  • Exxon Mobil Corp. will more than double its presence in the Permian Basin, the biggest U.S. oil field with acquisitions valued at as much as $6.6 billion.
  • Output from major U.S. shale fields is forecast to climb to 4.75 million barrels a day in February, according to a drilling report from the EIA.
(Corrects time reference in headline.)
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