Panic on trading floors as US drilling boom sinks oil price
THE oil price has fallen nearly 20pc in less than four weeks on the back of a drilling boom in the United States.
Crude dropped as low as $46.64 a barrel in London yesterday – its lowest level since November – having been trading above $ 56 in mid-April.
It later recovered but remained below $50 as hedge funds and other speculators abandoned bets on future oil price rises.
‘We have well and truly entered the capitulation stage,’ said Ole Hansen, head of commodity strategy at Saxo Bank.
Thursday was one of the busiest ever days for oil trading globally with options on 520m barrels changing hands as prices tumbled.
This week’s sell- off – described as ‘extremely violent’ by oil analyst Olivier Jakob at Petromatrix – sparked claims that fuel prices are not falling fast enough on petrol forecourts across the UK.
Supermarket Morrisons said it was cutting prices by another 2p a litre having already reduced diesel by 2p and unleaded by 1p earlier in the week.
The RAC welcomed the move but added that many petrol stations are guilty of ‘ rocket and feather’ pricing where fuel prices rise like a rocket when the oil price goes up but fall like a feather when the oil price goes down.
RAC fuel spokesman Simon Williams said: ‘The unwillingness to cut further and faster this week sadly is proof that rocket and feather pricing does exist and motorists are being ripped off at the pumps. Motorists deserve to be treated fairly.’
A surge in production in the US, driven by drillers flocking to American shale basins, at a time of subdued global demand has sent the oil price tumbling in recent weeks.
Investors are particularly worried about slowing Chinese demand as shale output in the US soars.
US oil production has risen by 840,000 barrels a day since last October to 9.3m barrels, with output up by 28,000 barrels a day in the final week of April, according to the Energy Information Administration. The US Energy Department expects production to hit 9.7m barrels a day in 2018 – breaking the record set in 1970.
Figures from industry experts Baker Hughes show the number of oil rigs operating in the US has more than doubled in the last year, rising by 450 to 870.
The rig count in Canada has also risen, by 48 to 85, but it is down by 42 to 943 in the rest of the world. The surge in production in North America has overshadowed efforts by the Organisation of Petroleum Exporting Countries (Opec) such as Saudi Arabia, Iran and Iraq to limit pro- duction by its members in order to prop up prices.
Opec member Libya resumed production from its largest field last week, adding more than 200,000 barrels a day to its production. The cartel is plotting to extend the agreement reached in November to cut production beyond June as the US floods the market with cheap oil from the shale revolution.
Star oil trader Pierre Andurand,
who runs hedge fund Andurand Capital, recently predicted that the price of crude would rise to $70 a barrel this year.
But having suffered heavy losses betting on rising prices, he has now reduced his exposure to oil, according to Reuters.
The £1.2bn Andurand Commodities Fund lost 11.6pc of its value in the first quarter of the year having delivered gains of 22pc last year. Michael Hewson, chief market analyst at CMC Markets, said speculators betting on rising oil prices have ‘thrown in the towel’ after ‘an awful few days’ on the oil market.
He added: ‘The rout increases the pressure on both Opec and non- Opec members to try and agree something if only to try and put a floor under prices.’