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WTI Falls as US Drilling Prospers

Posted by Joseph Trevisani on Jun 19, 2017 6:03:00 PM

The price of a barrel of West Texas Intermediate fell to a six week low as the pressure on crude oil from U.S. shale drillers continued unabated despite recent OPEC efforts to curb supply.

WTI traded down to $44.05 in New York, its weakest print in six weeks, and second weakest in seven months. But unlike both earlier plunges, May 5th  to $43.76 and  November 15th to $43.55 which saw strong intra-day  recoveries with closing prices of  $46.22 and $45.81 respectively, and marked or nearly so  the turning point for a subsequent rally,  WTI ended Monday at $44.11. This is a strong indication that the sharp 15.3 percent decline of the last three-and-a-half weeks has not yet has run its course. It has been the longest string of weekly price drops since August 2015. 

American shale drillers added six rigs last week bringing the total of exploration and production facilities to 747, the highest number since April 2015, according to Baker Hughes, the oil field services company. It was the 22nd straight weekly increase.  Libya was also reported to be producing about 900,000 barrels a day, the most in four years following an agreement with Wintershall AG, Germany's largest crude and natural gas producer. Libya is not a party to the OPEC production deal. 

Rising U.S. oil output has been prompted by the dramatic decrease in shale oil production costs.  From an estimated  per barrel breakeven price of more than $70 three years ago, many North American  shale fields are now thought to profitable at $40 or below.

Domestic U.S. crude production has jumped 10.4 percent in eight months, from 8.45 million barrels a day in early October to 9.33 million in the first week of June, according to the U.S. Energy Information Agency.  It has soared an astonishing 70 percent since 5.08 million barrels were pumped in September 2011. The all-time record for U.S domestic production is 9.61 million barrels a day in the week of June 5, 2015

Crude prices reflect the increasing likely consideration that the production cuts negotiated by the Organization of Petroleum Exporting Countries and its allies, most importantly Russia, will be offset by rising output in the U.S. and elsewhere.

OPEC’s stated goal of reducing stockpiles to their five year average, its second attempt to boost prices,  may be too little too late.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters

WTI

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wti 5 yr.png

US Crude Production

domestic prod 20 yr-1.png 

 

 

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