Picture: REUTERS
Picture: REUTERS

London — Oil fell on Wednesday after the US government said shale output would rise to a record next month, denting a rally that sent prices to their highest this year.

Brent futures eased by 53c to trade at $65.92 a barrel by 1.12pm GMT, still within sight of Monday’s high for the year of $66.83. US futures were at $55.77 a barrel, down 31c, having touched a 2019 peak of $56.39 earlier.

“Brent is trading in a narrow corridor at around $66.5 per barrel, while WTI is at around $56,” Commerzbank analysts said in a note. “This still leaves them within spitting distance of the three-month high they achieved at the start of the week ... It seems that the sharp rise in oil production in the US is having a slowing effect after all.”

The US Energy Information Administration (EIA) said in a monthly report on Tuesday that shale production alone will hit a record 8.4-million barrels per day (bpd) next month, suggesting little chance of a near-term slowdown in overall US crude output.

The oil price has risen by more than 20% so far this year, supported largely by an agreed 1.2-million bpd production cut by oil cartel Opec and several other major exporters such as Russia.

Saudi energy minister Khalid al-Falih said on Wednesday that he hopes the oil market will be balanced by April and that there is no gap in supplies due to US sanctions on Opec members Iran and Venezuela.

The restrictions on the energy sectors of Iran and Venezuela by the US have added to the drop in availability of the kind of crude oil that yields more valuable middle distillates, rather than cheaper fuels, such as petrol.

Despite the sanctions, Iran’s crude exports were higher than expected in January, averaging around 1.25-million bpd, according to Refinitiv ship tracking data. Many analysts had expected Iran oil exports to drop below 1-million bpd after the imposition of US sanctions last November, although it was much below the peak 2.5-million bpd reached mid-2018.

Barclays said US sanctions meant that “although there is no lack of resources, there is an increasing lack of access to them”.

BNP Paribas said surging US output would feed into lower oil prices towards the end of the year, with Brent to dip to an average of $67 a barrel by the fourth quarter and West Texas Intermediate (WTI) to average $61.

Said the bank,“US oil production growth, driven by shale, will be increasingly exported in greater volumes to international markets while the global economy is expected to witness a synchronised slowdown in growth.”