Oil resumed its decline after the biggest gain since June 2012 as US crude production increased, bolstering speculation a global supply glut that spurred last year’s price collapse may persist.
Futures dropped as much as 1.8% in New York. US output surged to 9.19 million barrels a day last week, the fastest pace in weekly records dating back to January 1983, the Energy Information Administration reported.
Crude may fall below a six-month forecast of $39 a barrel and rallies could be thwarted by the speed at which lost shale production can recover, according to Goldman Sachs Group Inc.
Oil slumped almost 50% last year, the most since the 2008 financial crisis, as the Organization of Petroleum Exporting Countries resisted cutting output even amid the US shale boom, exacerbating a surplus estimated by Kuwait at 1.8 million barrels a day.
Prices rose yesterday as a relative strength index rebounded after more than two weeks below 30, a level that typically signals the market is oversold.
“You tend to arrive at points every now and then in major trends like this where you just see a little bit of short covering and profit taking,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone today. “Supply is still the general theme.”
Oil is leading this week’s slide in commodities after a decade-long bull market led companies to boost production and a stronger dollar diminished their allure to investors.
The Bloomberg Commodity Index of 22 energy, agriculture and metal products decreased to the lowest level since November 2002 on January 13, extending a 17% loss last year.
West Texas Intermediate for February delivery declined as much as 88 cents to $47.60 a barrel in electronic trading on the New York Mercantile Exchange and was at $47.64 at 3:34 p.m. Singapore time.
The contract advanced $2.59, or 5.6%, to $48.48 yesterday. The volume of all futures traded was about 10 times the 100-day average.
Brent for February settlement, which expires today, dropped as much as $1.14, or 2.3%, to $47.55 a barrel on the London-based ICE Futures Europe exchange. The more-active March future was $1.05 lower at $48.81.
Brent traded below WTI earlier this week for the first time since July 2013, indicating that Saudi Arabia’s strategy of curbing American shale output growth is working, according to Societe Generale SA. The European benchmark crude was at a discount of 8 cents today.
US crude production accelerated by 60,000 barrels a day in the week ended January 9, the EIA reported.
Stockpiles expanded by 5.39 million barrels to 387.8 million, more than 9% above the five-year average for this time of year, according to the Energy Department’s statistical arm.
Inventories at Cushing, Oklahoma, the delivery point for New York-traded futures, climbed for a sixth week.
The speed at which investment can return to shale output is hurting prospects for a price recovery, Jeff Currie, Goldman’s New York-based head of commodities research, said in an interview.
“Shale has fundamentally changed this market,” he said. “The lead time between when you put money in the ground and when you get production has collapsed from three to four years, all the way down to 30 days.”
The US oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.
WTI will fall to $40 a barrel by the end of the first quarter while Brent may decrease to $42 amid the “war” for market share, according to Australia & New Zealand Banking Group. For the year, futures are projected at $48 and $50, respectively, analysts including Mark Pervan in Melbourne said in a report.
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