Oil Extends Decline as U.S. Sees Shale Output Expanding Further

(Bloomberg)

Oil extended its decline after the U.S. forecast record shale output next month and the International Energy Agency said OPEC producers face a long battle with American rivals.

Futures slid 0.6 percent in New York after losing 2.5 percent Monday, the biggest drop in more than five weeks. Production at shale fields is forecast to expand to 6.15 million barrels a day in September, according to a report from the Energy Information Administration. EIA data Wednesday may show U.S. crude inventories declined again last week, according to a Bloomberg survey.

Oil in New York has been unable to hold a rally above $50 a barrel this month as investors weigh rising global supply against output cuts by the Organization of Petroleum Exporting Countries and its allies. OPEC will have to “ dig in for the long haul” to eliminate the enduring oversupply,  Neil Atkinson, head of the IEA’s oil markets and industry division, said in an interview Tuesday.

“The driver behind the weakness has been continued rise in U.S. shale production,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “With EIA expected to show another weekly inventory draw tomorrow, it’s my belief that we should find support as the market awaits the report.”

West Texas Intermediate for September delivery was at $47.33 a barrel on the New York Mercantile Exchange, down 25 cents, at 8:32 a.m. local time. Total volume traded was about 30 percent above the 100-day average. Prices slid $1.23 to $47.59 on Monday, the largest one-day decline since July 7.

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Brent for October settlement dropped 40 cents to $50.33 a barrel on the London-based ICE Futures Europe exchange, after slumping 2.6 percent on Monday. The global benchmark crude traded at a premium of $2.86 to October WTI.

U.S. crude inventories probably shrank by 3.6 million barrels last week, according to the Bloomberg survey. Stockpiles have declined by more than 33 million barrels since the end of June, EIA data show.

Oil-market news:

Investors are worrying over the potential fallout when OPEC’s deal to cut output expires, with uncertainty about the return of supplies in 2018 clouding the outlook for crude, according to BMI Research. OPEC’s battle to clear a global oil glut might last for years, rather than the six months it initially expected, as data from the IEA show world inventories could remain oversupplied beyond 2018. Resurgent long positions in Brent crude last week were encouraged by prospects for a return to  backwardation at the front of the curve, according to analysts from UBS Group AG to Saxo Bank. OPEC’s “secondary sources” data show compliance with last November’s production deal at 87 percent in July, according to a person familiar with the matter.