U.S. crude oil inventories fell by a surprising large 4.95 million barrels last week, the U.S. Energy Information Administration announced this morning. This took international benchmark Brent crude up as high as $70 a barrel during trading on Thursday before closing at $69.20 a barrel. U.S. benchmark West Texas Intermediate closed at $63.57 a barrel.
The move up to an intraday $70 a barrel raised the volume of voices calling that price unsustainable. “Seventy dollars is too much,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt told Bloomberg. “It’s not completely unexpected, given the price momentum. But there will be a reaction in U.S. shale, and OPEC’s strategy will backfire massively.”
Fears that OPEC’s agreement to cut production might lead to a big surge in oil from U.S. oil shale producers got support from the recent forecasts from the U.S. Energy Information Administration that said U.S. production is likely to exceed 10 million barrels a day as early as next month and that put U.S. production at 11 million barrels a day before the end of 2019.
This is leading to public second-guessing by some OPEC members. For example, Iran, Saudi Arabia’s biggest rival in OPEC and in the region, has warned that OPEC cuts risk overheating the market. OPEC’s members aren’t keen on Brent prices above $60 barrel because of the potential for more shale output, Iran’s Oil Minister Bijan Namdar Zanganeh said, according to the ministry’s news service Shana.
Energy shares powered the Standard & Poor’s 500 stock index 0.7% higher for the day. The index is now up 3.5% for 2018. The Energy Select Sector SPDR ETF (XLE) closed up 2.04% for the day.