Crude lost steam as the International Energy Agency warned about seemingly unstoppable U.S. shale production against the backdrop of swelling American oil stockpiles.
Futures in New York dropped as much as 1.2 percent on Tuesday after IEA Executive Director Fatih Birol said “explosive growth” in U.S. oil output may extend beyond this year. At the same time, investors were bracing for a government tally on Wednesday that’s expected to show American crude inventories rose last week to the highest since 2017.
“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 is a risk factor that could delay those efforts, Birol said the same day in a Bloomberg Television interview.
West Texas Intermediate for April delivery slipped 79 cents to $63.12 a barrel at 10:47 a.m. on the New York Mercantile Exchange. Total volume traded was about 43 percent below the 100-day average.
Brent for April settlement, which expires Wednesday, declined 64 cents to $66.86 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $3.74 premium to WTI.
Expanding stockpiles
Strength in the dollar also weighed on crude prices because a rising greenback diminishes 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 0.3 percent.
U.S. crude inventories probably increased 2.5 million barrels last week, according to a Bloomberg survey before Energy Information Administration data scheduled to be released Wednesday. Still, at the Cushing, Oklahoma, pipeline hub, crude inventories probably dropped by 1.2 million barrels, according to a forecast compiled by Bloomberg. That would make for a 10th straight week of declines.
“Currently we are in a wait and see mode for the upcoming inventory data,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “With crude stockpiles potentially building again, oil remains vulnerable to another correction.”
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