Oil’s rally is unraveling on fears over an increase in U.S. production and as a deepening slump in equities undermines market support.
Benchmark Brent fell to its lowest level since Jan. 8 after Baker Hughes data showed American explorers last week raised the number of rigs drilling for crude to the highest in almost six months. A global slump in equities deepened on Monday, removing another pillar of support for the oil market.
Brent has broken US$70/bbl this year, extending a rally driven by the extension of an output deal until the end of 2018 by the Organization of Petroleum Exporting Countries and its allies. While crude’s strong start to the year was also helped by falling U.S. inventories, strong gains in equities and a weaker dollar, analysts have been cautioning about the potential for a surge in U.S. shale production.
“A global sell-off in risk assets is gathering pace and sending the energy complex lower amid a sea of red,” PVM Oil Associates Ltd. analysts Tamas Varga and Stephen Brennock wrote in a report. “The risk-off environment throughout the energy complex comes as U.S. drillers added oil rigs for a second consecutive week.”
Brent for April settlement lost as much as 98 cents to US$67.60/bbl on the London-based ICE Futures Europe exchange. It traded 90 cents lower at $67.68/bbl at 12:44 p.m. in London. The global benchmark crude traded at a premium of $3.29 to April West Texas Intermediate, touching the least since August.
WTI for March delivery dropped 61 cents to US$64.84/bbl on the New York Mercantile Exchange.
U.S. drillers last week added six rigs to raise the number of machines drilling for crude to 765, the highest since Aug. 11, Baker Hughes data showed Friday. That may lead to a further increase in U.S. crude production, which breached 10 million bbls/d to the highest level in more than four decades in November.
Copyright © 2018 Bloomberg L.P.