Global oil futures dropped on Thursday with benchmark prices slumping to their lowest settlements in 17 months after the Federal Reserve hiked US interest rates and Donald Trump sent the US to the edge of a partial government shutdown.
February West Texas Intermediate futures tumbled $US2.29, or 4.8%, to settle at $US45.88 a barrel, after jumping 3.4% on Wednesday before the Fed decision to raise interest rates for the fourth time this year.
Thursday’s settlement was the lowest finish since July 21, 2017. US prices are down by just over 18% for the year so far, but down nearly 34% in the past three months.
The price of February Brent futures, the global benchmark, fell $US2.89, or 5.1%, to end at $US54.35 a barrel in Europe the lowest settlement since September 12, 2017. Brent futures are more than 13% lower than when they started in 2018, and off 29% in the last three months.
Reports that OPEC is “reportedly planning to release a table detailing voluntary supply cut quotas among its members and allies” had no impact on prices. Analysts note the word ‘voluntary’ which suggests that some, if not all producers will not be bound to the most recent deal.
The Wall Street Journal reported that Saudi Arabia will now reduce its output by about 322,000 barrels a day from October, instead of the 250,000 barrels a day announced at the OPEC meeting earlier this month. That would cut Saudi output to 10.311 million barrels a day.
The Energy Information Administration reported Wednesday that US oil stocks rose 500,000 barrels for the week ended December 14, though that was smaller decline than the 3 million barrel-fall expected by analysts.
Some analysts say we are already seeing the impact of rising US production undermining OPEC’s attempts to cap production.
US oil production in the week ending December 14 was11.6 million bpd a day, just off the all-time record of 11.7 million bpd earlier this month.
If production expands at the rate that the EIA has forecast, it will effectively account for OPEC’s cuts by the end of 2019.
The EIA’s Drilling Productivity report released on Monday of this week forecast January 2019 US shale oil production at 8.166 million barrels a day, up 26% from 6.499 million barrels a day in January.
OPEC and its allies including Russia agreed to sweeping cuts of 1.2 million bpd earlier in December, with non-OPEC allies contributing 400,000 barrels of that reduction.
That is equivalent to the 1.18 million bpd in additional production the US is expected to add next year, the EIA said last week, due to growth in shale early next year and in several long-awaited offshore projects set to come online late in the year.
Output is now expected to exceed 12 million bpd in the the first half of 2019.
OPEC said this month that the group will lose market share in 2019, falling from about 33% of global crude output in 2018 to 31% in 2019.
The US will make up the difference.
The maths are starkly clear – OPEC and its allies cut production by 1.6 million bpd at the end of 2016 in an effort to reduce a worldwide supply glut, but during the life of that agreement, American output increased by 1.62 million bpd, effectively dragging market share away from OPEC.