Crude edged lower amid predictions of a steep hike in U.S. crude output this year.
Futures in New York slid as much as 1.7 percent and are poised for the first weekly loss since mid-December. The International Energy Agency on Friday said it sees “ explosive” growth in U.S. oil output in 2018. A day earlier, the Energy Information Administration showed the biggest gain in U.S. crude production since October.
“The higher the price is, the more production we are going to get out of the U.S., which threatens the price,” James Williams, president of London, Arkansas-based energy researcher WTRG Economics, said by telephone. “We are in that threatening cycle right now.”
The rally that began 2018 has weakened as technical indicators signal oil is overbought and amid concerns over the level of U.S. production growth this year. Yet, the Organization of Petroleum Exporting Countries continues to reduce output and producers will meet in Oman this weekend to review strategy.
Some analysts expect the reduction-cut agreement will end earlier than planned. The “probability is growing” that the accord may conclude before the end of the year, said Harry Tchilinguirian, BNP Paribas SA’s head of commodity strategy. Discussions around an early exit are likely to emerge at the next OPEC meeting in June, he said.
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The IEA’s report is “adding to the current theme of non-OPEC growth at these levels,” says Ole Hansen, head of commodity strategy at Saxo Bank A/S. “It’s another reason to be cautious about getting too carried away with oil.”
West Texas Intermediate for February delivery dropped 41 cents to $63.54 a barrel at 9:57 a.m. on the New York Mercantile Exchange. Total volume traded was about 17 percent above the 100-day average. Prices are down 1.2 percent this week.
Brent for March settlement slipped 38 cents to $68.93 a barrel on the London-based ICE Futures Europe exchange. Prices are set for a 1.4 percent decline this week. The global benchmark crude traded at a premium of $5.43 to March WTI.
The IEA expects non-OPEC supply to expand by 1.7 million this year, the biggest jump since the peak of the shale boom.
“The big 2018 supply story is unfolding fast in the Americas” the IEA said in its monthly report. “Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.”