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As OPEC Acts on New Year’s Resolution, U.S. Shale Pumps Away

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U.S. shale is getting in the way of a New Year’s resolution by OPEC to cut production and boost the market.

Producers and merchants increased their bets on lower West Texas Intermediate crude prices to the highest level since 2007 as futures held above $50 a barrel. The increase in hedging against a price drop signals a comeback in U.S. shale output, just as OPEC members and other producers seek to reduce supply.

The Organization of Petroleum Exporting Countries reached an agreement in November to cut production by 1.2 million barrels a day for six months starting in January, and were joined by 11 non-OPEC nations in an effort to reduce a global glut. The Energy Information Administration last week raised its forecast for 2017 U.S. crude production. A Barclays Plc survey showed North American oil and gas explorers will spend 27 percent more this year.

“It may not all be physical above-the-ground inventory that is being hedged, but it may be a portion of 2017 and 2018 planned production,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said Friday. “Certainly, if there was strong conviction that oil prices are heading for $70, then producers would be less inclined to sell at current levels.”

Producers and merchants increased their short positions, or bets on lower prices, to 675,968 futures and options in the week ended Jan. 10, U.S. Commodity Futures Trading Commission data show. WTI fell 2.9 percent to $50.82 a barrel during the report week, and slipped 0.2 percent to $52.25 at 9:20 a.m. London time on Monday.

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Written by Jessica Summers

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