Crude Slumps as `Explosive' Shale Growth Threatens Supply Cuts

(Bloomberg) -- Crude dropped the most in more than two weeks as the International Energy Agency warned about seemingly unstoppable U.S. shale production.

Futures in New York fell 1.4 percent on Tuesday after IEA Executive Director Fatih Birol said “explosive growth” in U.S. output may extend beyond this year. Investors were also bracing for a government tally on Wednesday that's expected to show American crude inventories rose to the highest since 2017. A strengthening greenback further eroded the appeal of dollar-priced commodities.

“The comments from the IEA head about the pace of U.S. shale growth might have taken the wind out of the bull's sails,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. Heftier stockpiles and a slide in refiner demand “should end up being a bearish factor for the market as well.”

As the Organization of Petroleum Exporting Countries works to trim output, producers are committed to bringing supply and demand into balance, United Arab Emirates Energy Minister Suhail Al Mazrouei said Tuesday in Abu Dhabi. Strong U.S. shale growth could delay those efforts, Birol said the same day in a Bloomberg Television interview.

American explorers have expanded the fleet of rigs searching for domestic crude to the highest since 2015 as the OPEC-led supply curbs resurrected oil markets.

“You've had the rig count grind higher,” Rob Haworth, who helps oversee $151 billion in assets at U.S. Bank Wealth Management in Seattle, said by telephone. “It seems like shale producers are really getting a lot of efficiency for their capital investment and seem to be making money at these levels.”

West Texas Intermediate crude for April delivery fell 90 cents to settle at $63.01 a barrel on the New York Mercantile Exchange. Total volume traded was about 21 percent below the 100-day average.

U.S. Supply Picture

Brent for April settlement, which expires Wednesday, declined 87 cents to end the session at $66.63 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $3.62 premium to WTI.

As expiration nears, the front-month Brent futures' premium over its second-month contract is at 11 cents, the smallest since November.

Strength in the dollar weighed on crude prices as a rising greenback diminished the appeal of commodities priced in the U.S. currency. The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, rose as much as 0.7 percent as Federal Reserve Chairman Jerome Powell said inflation could be gaining speed.

WTI calendar strip bets made on flatter curve in second half of 2018

A Bloomberg survey showed U.S. crude inventories probably increased by 3 million barrels last week. Conversely, stockpiles at the Cushing, Oklahoma, pipeline hub probably dropped by 1.2 million barrels, according to a forecast compiled by Bloomberg. That would make for a 10th straight week of declines.

The industry-funded American Petroleum Institute will release its weekly inventories data later on Tuesday.

Other oil-market news:

• Gasoline futures fell 1.3 percent to settle at $1.8034 a gallon.
• The head of OPEC plans to dine with U.S. shale company executives on Monday in Houston, the second consecutive year that the secretary general will have met with some of the cartel's top rivals.
• Oilfield-service costs will rise by double digits this year, according to Carrizo Oil & Gas Inc., the latest U.S. shale explorer to warn about rising expenses.
• Koch Supply & Trading is cutting at least 10 positions in petrochemicals, fuel oil and gasoline trading mostly in Singapore, Geneva and Houston, according to people familiar with the matter.

--With assistance from Sharon Cho and Angelina Rascouet

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Joe Carroll, Debarati Roy

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