Fears of enhanced production by U.S. shale producers, hoping to cash-in on recent increases in the price of crude have pushed the commodity lower, as concerns rise regarding the potential for significant market-saturation once more.
Prices of the commodity had soared in the wake of the signing of the OPEC deal designed to reduce oil-market-saturation, and thus lift the price from the glut in which it has lingered since July 2015.
The deal, designed to shave 2% from global production via incorporation of non-OPEC members, primarily Russia, and OPEC constituents agreeing to stomach significant reductions in production, had been called into question in recent trading weeks.
With Iraq and Iran apparently failing to comply to the premise of the agreement, and Libya seemingly increasing their oil production, it appeared the deal was encountering increasing resistance.
Lingering fears regarding the capacity of U.S. shale producers to cash-in on the price increase experienced since the signing of the deal last November, as well as apparent failures by member states to comply to the deal had instilled an increasingly bearish notion amongst many analysts.
Oil prices consequently dropped in recent trading sessions, as analysts reviewed their bullish bets with greater scrutiny, with rising concerns regarding a U.S. shale production increase.
Such concerns appear to have materialised in earnest during today’s trading session, with the price of Brent crude, the global oil benchmark, down 2.22% at 14:07 EST, marking a reversal of gains made in previous trading sessions during the week.
Analysts are likely to maintain their bearish position for the foreseeable future, as the notion of OPEC cooperation and the capacity of U.S. shale production manifest into an increasingly pessimistic year for the commodity.
Chart from: https://www.dailyfx.com/crude-oil
Showing daily fluctuations in the price of Brent crude, the global oil benchmark. The major decline in the graph is an illustration of the increasing severity of the supply glut experienced since July 2015. The significant rally apparent at the most recent aspect of the chart represents the optimism experienced during the signing of the OPEC supply-cut deal in November 2016. Note the significant drop in recent trading sessions, due to concerns about the stability and capacity of the OPEC deal to truly reduce supply, as well as the ability of U.S. shale producers to increase their production.