Gerard Izuora
Oil prices fell on Wednesday, pulled down by weaker sharemarkets after a key advocate for free trade in the U.S. government resigned, triggering concerns that Washington would go ahead with import tariffs and risk a trade war.
Soaring U.S. crude oil production and rising inventories were also weighing on crude prices, traders said.
Brent crude futures were at $65.37 per barrel down 42 cents, or 0.6 percent from their previous close, while U.S. West Texas Intermediate (WTI) crude futures were at $62.16 a barrel, down 44 cents, or 0.7 percent.
Gary Cohn economic adviser to U.S. President Donald Trump, seen as a bulwark against protectionist forces within the government, said on Tuesday he was resigning, triggering a more than 1 percent fall in S&P 500 futures in early Wednesday trade and crude oil futures followed suit.
A voice for Wall Street in the White House, Cohn’s move to resign came after he lost a fight over Trump’s plans for hefty steel and aluminum import tariffs.
Major powers, including the European Union and China, have warned that such tariffs could lead to retaliatory action and trigger a global trade war, which could grind to a halt economic growth and, by extension, oil consumption.
Traders said oil prices were also weighed by a reported rise in U.S. crude oil inventories.
Crude inventories rose by 5.661 million barrels in the week to 426.880 million barrels, data from the American Petroleum Institute showed on Tuesday.
Overall, oil supplies are ample despite efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia to withhold output in order to prop up prices.
The EIA on Tuesday made its latest in a series of upward revisions for U.S. crude oil production , which it now expects to rise by more than 120,000 barrels per day (bpd) to 11.17 million bpd by the fourth quarter of 2018.
That would take the United States past Russia to become the world’s biggest oil producer. The U.S. already passed top exporter Saudi Arabia late last year.
For 2019, the EIA forecast a crude production increase of 570,000 bpd to 11.27 million bpd.
Meanwhile the world’s largest oil producers have appealed to U.S. shale producers to join their efforts to hold global prices at their current level at a major energy conference Monday, as the boom in shale is continuing to undermine OPEC’s production curbs.
OPEC Secretary General Mohammed Barkindo said Monday at the CERAWeek conference in Houston that there is a “common understanding” between oil-producing nations and U.S. shale producers that “we all belong to this industry,” even as U.S. exports have eroded OPEC’s market share over the last year.
This year’s CERAWeek conference continues outreach between the Organization of the Petroleum Exporting Countries and shale producers. Members of OPEC will meet with shale producers on Monday evening at a dinner for the second year in a row, though Barkindo said that price levels and production will not be discussed.
However, shale’s surge in the last year was heavy on the minds at the Houston conference, particularly as U.S. production surged to an all-time record late last year.
Minister of state for petroleum resources Emmanuel Ibe Kachikwu was more explicit than Barkindo, saying that oil majors operating in both shale fields and in OPEC members should bear some responsibility for prices.
“We need to begin to look at companies that are very active in these areas and begin to get them to take some responsibilities in terms of stability of oil prices,” Kachikwu told Reuters on the sidelines of the CERAWeek energy conference in Houston, though he did not name any specific companies.
“Some of the same companies that are working in shale are the same companies working in OPEC (member countries).”
The price of oil rose steadily throughout 2017 in the wake an agreement between the Organization of the Petroleum Exporting Countries and non-members including Russia, to cut production by 1.8 million barrels a day beginning last year.
That surge in prices, however, boosted U.S. production sharply, which hit a record in November 2017 at more than 10 million barrels a day and is expected to surpass 11 million barrels a day later this year.
Going forward, Fatih Birol head of the Paris-based International Energy Agency, EIA said in Houston that shale growth may continue to rise regardless of OPEC policies – warning that larger producers may need to reconsider their future growth given “huge growth” in shale.
Rising prices have U.S. shale producers pumping more, while OPEC has maintained its price cuts, with output from members at a 10-month low.
The cartel’s leaders have even expressed interest in keeping some production curbs in place through 2019, though Suhail Mohamed Al Mazrouei, the United Arab Emirates oil minister, said OPEC has not “at this stage” discussed extending cuts into next year.
Kachikwu said that the rapid growth in shale supply is “not just a problem for OPEC, it’s a problem for the entire oil industry.”
“I don’t think it requires pressure. I think the oil companies would be the first to tell you that stability in the oil price is important to them,” he said.
U.S. oil majors, however, cannot engage in supply restrictions to affect the price as the OPEC cartel does, and some ministers on Monday played down the idea that the growth of shale could not be handled.
Ecuador’s oil minister Carlos Perez noted that shale fields tend to have lower total oil recovery than conventional fields.
“It has an impact but not the impact we expected. Recovery factors are still low, so right now (there is) no additional impact,” Perez said.