Sun, Feb 11, 2018 - Page 16 News List

Fears of a new shale boom add to oil meltdown

UNRAVELING MARKETS:Oil had its worst week since 2016 as US crude output is soaring so fast that it is on the verge of becoming the top supplier

Bloomberg

The last time oil had such a bad week two years ago, the commodity was trading near a US$26 bottom.

On Friday alone, futures in New York lost almost US$2, settling at less than US$60 a barrel for the first time this year as the unraveling of global equity markets added to concerns that a new shale boom is in the making.

American crude output is soaring so fast that the US is on the verge of elbowing Saudi Arabia and Russia aside as the top supplier, gushing more than 10 million barrels a day. Drillers this week added the most oil rigs since January last year.

“The supply backlash that we have been expecting in the US because of higher prices became very real in the market psyche,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone.

Crude had been on a steady rally since June as the Organization of Petroleum Exporting Countries and Russia curtailed output to prop up prices, while American stockpiles shrank.

However, with some prime shale areas delivering profits with oil at US$50 or even less, the US is producing the most crude since the 1970s.

Traders who try to divine market momentum from technical signals were closely watching New York crude’s 50-day moving average during the session, with West Texas Intermediate closing below the key level. A settlement below that mark for several days in a row would be regarded as a bearish indicator.

WTI for March delivery slid US$1.95 to settle at US$59.20 a barrel on the New York Mercantile Exchange, the lowest since Dec. 22. For the week, futures declined 9.6 percent, the most since January 2016.

Brent for April settlement declined US$2.02 to end the session at US$62.79 on the London-based ICE Futures Europe exchange. The global benchmark settled at a US$3.80 premium to April WTI.

While the S&P 500 Index on Friday erased losses, stocks were still poised for their worst week since 2016.

Oil and gas companies are feeling the pain. The S&P 500 Energy Index fell 5.2 percent for the week, the largest on a weekly basis since January 2016.

The volatility in equity markets has carried over into the oil market as well. The CBOE/Nymex Oil Volatility Index rose for a sixth day to the highest level since August last year.

The broader market sell-off could also weaken consumer sentiment and eventually affect demand for oil, Mark Watkins, a Park City, Utah-based regional investment manager at US Bank Wealth Management, said by telephone. “They may get a little bit more tight on their spending, and if that’s the case, it will eventually make its way into demand for oil and start to slow the rebalancing process.”

Additional reporting by Reuters

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