Flooded markets are keeping oil prices in a slump
Rough ride: U.S. crude oil prices tumbled to their lowest levels in roughly nine months yesterday and remained in that terrain in early trading on Wednesday, hanging around in the mid $43-per-barrel range.
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Brent crude prices hit roughly half-year lows yesterday.
What's going on: Traders are reacting to the the glut of oil sloshing around global markets despite joint efforts by OPEC and some other producers, including Russia, to limit output.
The various forces influencing markets include:
- U.S. shale oil production is surging again as cost-cutting and technological advances make lots of wells profitable even at modest prices.
- Production from Libya, an OPEC member that's not covered by the production deal, has risen substantially and is now about 900,000 barrels per day — a small producer by global standards but the extra barrels from anywhere move markets.
What they're saying: OPEC is struggling for influence. "[M]arket participants are not convinced that the OPEC's efforts will help shore up prices in a meaningful way in the short-term as shale supply continues to rise in the U.S.," said Fawad Razaqzada, an analyst at Forex.com, via Reuters.
Warning signs: the Houston Chronicle points out that a prolonged tumble could threaten the U.S. oil sector's ongoing rebound from the 2015-2016 collapse that saw prices bottom out in the $26 range early last year.
What's next: traders are keeping their eyes on the Energy Information Administration's weekly crude oil inventories report that's due out at 10:30 this morning.