Oil slides as U.S. output soars and North Sea crude flows restart
Oil prices hit their lowest in six weeks on Thursday after data showed U.S. crude output had reached record highs and the North Sea’s largest crude pipeline reopened following an outage.
The rise in U.S. 10-year government bond yields to their highest in four years this week has put the dollar on track for its biggest weekly rise since November 2016, making it more profitable for non-U.S. investors to sell dollar-denominated assets such as oil.
Brent crude futures LCOc1 were down 14 cents at $65.37 a barrel by 0907 GMT, having hit a 2018 low of $65.10. U.S. futures CLc1 were down 15 cents at $61.64 a barrel.
Brent futures have lost around 8 percent in value since reaching a four-year high above $71 in late January, and investors in crude are still sitting on one of the largest bullish positions in history.
“This is more a timely correction. I don’t believe it’s going to come significantly lower,” PVM Oil Associates strategist Tamas Varga said.
“The 10-year yields went higher again yesterday so, if you believe in this sort of inverse correlation, then that is bearish as well.”
Oil prices were dented by the restart of the Forties pipeline in the North Sea, following an outage the previous day.
The Forties pipeline, which carries around a quarter of all North Sea crude output and roughly a third of Britain’s offshore natural gas production, shut on Wednesday for the second time in two months, following a valve closure at its Kinneil facility in Scotland.
The U.S. Energy Information Administration (EIA) this week upped its 2018 average output forecast to 10.59 million barrels per day, up 320,000 bpd from its last forecast just a week earlier.
At 10.25 million bpd, U.S. output is now higher than the previous 10.044 million bpd record from 1970 and above that of top exporter Saudi Arabia.
“Clearly, the data points to an imbalanced market and oil prices have responded by turning sharply lower,” said Fawad Razaqzada, market analyst at futures brokerage Forex.com.
U.S. crude inventories C-STK-T-EIA rose 1.9 million barrels in the week to Feb. 2, to 420.25 million barrels.
Chinese consumption of oil meanwhile is rising, as reflected by the surge to a record 9.57 million bpd in imports in January, according to official customs data.