Oil Plunges As Shale Output in U.S. Offsets Cuts by OPEC

Oil has dropped by $45 per barrel for the first time since an agreement was made by OPEC and other oil producing nations last November to cut output as shale in the U.S. has offset OPEC’s attempts to stabilize prices at a higher level.

On Friday morning, in 10 minutes, futures in the U.S. fell over $1 per barrel amidst an increase in volume. This week the futures have dropped 8.6% erasing all their gains since OPEC signed a deal for six months in November to pullback production and to ease the oil glut that exists worldwide.

The drop in price is driven by the increase in U.S. output that is threatening to offset cuts even while OPEC and oil giant Russia moved toward a six-month extension for production cuts.

While the curbs by OPEC pushed oil during January to its highest prices since July of 2015, the increase encouraged drillers in the U.S. to start pumping even more.

That resulted in 11 straight weeks of growth in production in the U.S., the longest such run of increases in 5 years.

Prices are over 50% below their 2014 peak when surging output of U.S. shale triggered the biggest collapse in crude prices in the past generation and left giant producers like Saudi Arabia trying to find ways to protect its market share.

West Texas Intermediate for delivery in June fell by up to $1.76 per barrel or 3.9% in New York. Total volume traded reached close to four times the average for the past 100 days.

Brent crude for settlement in July fell by up to $1.74 or 3.6% in London. Prices are 7.1% down just this week.

Energy companies will end this week lower across Europe even following the major oil companies from the region posting earnings for the first quarter that beat analyst expectations and showed they have learned to adapt to an environment with lower prices.

Crude production in the U.S. increased to just over 9.28 million barrels last week which is the highest since August of 2015. While OPEC will likely prolong its curbs for another six months, shale supply in America continues to be a concern to them said the oil minister from Nigeria.

OPEC is meeting May 25 to decide if they will extend the cuts in supply through the second six months of 2017.

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