Oil slides as United States production shows no signs of slowing down

Oil prices nosedive amid rising US drilling

Last week, both Brent and WTI crude oil traded in a $2.50 range as investors weighed the impact of the first oil cut from OPEC in eight years against rising USA shale oil output and high inventories. It showed that hedge funds decreased their net long positions in US WTI (West Texas Intermediate) crude oil contracts by 86,784 contracts to 288,774 contracts in the week ending March 14, 2017-compared to the previous week.

Elsewhere, Brent oil for May delivery on the ICE Futures Exchange in London dipped 61 cents to $51.15 a barrel.

"The OPEC cuts are real and are cleaning up the market", Citigroup analysts including Seth Kleinman wrote in a report earlier this week.

The initial news about OPEC's planned cuts caused the price of Brent crude oil to soar from less than $4 per barrel to more than $52.

While few expected the Organization of Petroleum Exporting Countries and 11 other producers to eliminate a surplus overnight, the oil glut punishes bulls by dragging down futures markets that are ultimately anchored to physical price benchmarks. At the same time, high inventories internationally have slowed new purchases, putting a downward pressure on prices.

In the U.S., drillers added 14 oil rigs in the week to March 17, according to Baker Hughes. Producers added more oil rigs to US fields, extending a drilling surge into a 10th month, Baker Hughes Inc. said on Friday.

"The rapidly diminishing optimism over the OPEC production cut deal has heavily dented buying sentiment towards oil", said Lukman Otunuga, a research analyst at FXTM.

"The continued increase in USA oil rigs adds to the bearish sentiment", he added. However, U.S. shale producers can't continue to increase their output indefinitely.

The OPEC headline about keeping production cuts in place with Non OPEC participation, sent the price of Crude oil back toward unchanged levels.

At a Vienna meeting in May, OPEC will decide on whether to ditch, continue or widen production cuts. Crude oil inventories have risen by ~50 million barrels in the U.S. so far this year. EIA forecasts show that United States shale oil production is expected to rise again in April by 109,000 bpd to 4.96 million bpd suggesting that shale is surely making a comeback at this level of oil prices. Production peaked in mid-2015 and fell by more than 1 million barrels per day by mid-2016.

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