The price of a barrel of West Texas Intermediate dropped to its lowest level since last November's production cut agreement as Saudi Arabia disclosed an unexpected increase in output and American shale pumping is set to jump substantially.
Data from the Organization of Petroleum Exporting Countries (OPEC) showed that Saudi output surged by 263 million barrels a day from January to February, just one month into the deal between OPEC and several non-OPEC producers, inlcuding Russia , that mandated a reduction in their crude production in an effort to support the price. Saudi Arabia is the oil cartel's largest producer. The Saudi increase was equal to one-third of the organization's promised output reduction.
Further downward price pressure came from the U.S. Energy Information Adminstration whose Drilling Productivity Report noted that shale production from the seven main continental formations is expected to rise by 109k barrels from March to April. If the report is accurate U.S. output would climb from 4.853 million barrels a day to 4.962 million barrels a day, offsetting OPEC's entire February production cut.
After the Noverber 30th agreement between OPEC, Russia and other non-organization producers crude oil jumped 19 percent from $45.23 on November 29th to 53.99 by January 6th. That remained the highest price for WTI in 18 months until a brief run on February 23rd took it to $54.45 Oil was down 2 percent today, trading at $47.40 at 12:15 pm in New York.
Markets are awaiting the decision from the U.S. Federal Reserve at 2:00 pm tomorrow when the central bank is expected to raise its benchmark Fed Funds rate by 25 basis points to 1.00 percent. If the open market committee, the bank's policy board votes to hike it would be just the third increase since the financial crisis and the end of the recession in June 2009.
Chief Market Strategist