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Oil drops on demand concerns, rising U.S. shale output

Kitco News

LONDON (Reuters) - Oil prices dropped on Tuesday after see-sawing throughout the session as lingering concerns over global demand and rising U.S. output offset expectations for major producers to further curtail supply.

Brent crude futures LCOc1 were down 45 cents, or 0.7%, from the previous settlement at $58.12 a barrel at 1150 GMT. The international benchmark has lost more than 20% since hitting its 2019 high in April.

U.S. West Texas Intermediate (WTI) CLc1 futures were at $54.34 per barrel, down 59 cents, or about 1%.

A deepening trade war between the United States and China, the world’s two largest economies and energy consumers, has weighed heavily on oil prices in recent months.

China’s central bank lowered its official yuan midpoint for the ninth straight day to a fresh 11-year low on Tuesday. A weaker yuan raises the cost of dollar-denominated oil imports into China, the world’s biggest crude oil importer.

Booming U.S. shale oil output also continues to chip away at efforts to limit the global supply overhang, weighing on prices.

U.S. oil output from seven major shale formations is expected to rise by 85,000 barrels per day (bpd) in September to a record 8.77 million bpd, the Energy Information Administration forecast in a report.

The start-up of a major pipeline between the Permian shale basin and the Gulf Coast means that more crude can be exported, adding to global supplies.

“The big test now is whether the shale producers can keep growing production at these lower price levels,” said Callum Macpherson, head of commodities at Investec.

“This could be the start of a re-adjustment process from the artificially high prices OPEC is implicitly trying to maintain down to something more in line with the marginal shale production costs,” Macpherson said.

Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries, said last week it planned to keep its crude exports below 7 million bpd in August and September to help drain global oil inventories.

The kingdom’s plan to float its national oil company Saudi Aramco in what could be the world’s largest initial public offering (IPO) gives it further impetus to boost prices.

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