Oil prices continued their descent on Tuesday as growing US crude output weighed down on prices, pushing them lower the $69 level for first time this week.
International benchmark Brent oil futures for April delivery lost 0.8 percent to $68.61 per barrel. US West Texas Intermediate (WTI) for March contract was down 1.6 percent to $64.50 a barrel.
Chief energy economist Hans van Cleef said that market optimism might have bolstered prices a bit too high. However, as long as crude stockpiles keeps falling, in his opinion, he is more and more looking at a buy-on-dips approach, therefore he is seeking a correction lower.
Rising US Oil Output
Expectations of inventories growing for the first time in 11 weeks attributed to oil’s losses. Additionally, a strong tightening in Brent and WTI might result to further output gains, as US exports become uneconomical.
Managing director Olivier Jakob said that the contraction of the WTI-Brent spread is bearish for WTI. The US needs to export crude otherwise it will turn into oil moving back into stocks, he added.
Oil prices further retreated from their strongest levels since late 2014 on Monday. Traders have been weighing a steady increase in US output against the Organization of the Petroleum Exporting Countries’ (OPEC) ongoing efforts to curb supplies.
Analysts and traders have cautioned that shale oil producers could raise output due to higher prices. This move could disrupt OPEC’s effort to reduce excess supply.
While the country’s oil has gained more than 7 percent this year, speculation is still growing. The rally is likely to fuel growth in US output.
US inventories fell to 411.6 million in the week ended January 19, its lowest level since February 2015. Nationwide output on the other hand, was up 9.87 million barrels per day (bpd). This is the highest government data since 1983.
Oil drilling rigs have also risen by 12 to 759 in the previous week, the biggest weekly increase since March. This just further reinforces speculation that production will climb higher.
US output has added over 17 percent since mid-2016 and is expected to hit above 10 million bpd soon. The country’s inventories have already reached its highest level in more than three decades.
US oil and natural gas trade association American Petroleum Institute is set to release its weekly report later in the day. Energy Information Administration (EIA) will present official figures on Wednesday.