Oil up Third Day; Specter of Weakening Shale Adds to Rally


Investing.com – The rally in oil seems to be going and going. Another record high on the Dow, more trade deal hopes and suggestions that shale oil development could hit a low soon combined to give another crude prices a fresh boost Tuesday.

West Texas Intermediate settled up 69 cents, or 1.2%, at $57.23 per barrel. It has gained 5.6% since Thursday, when it last settled lower.

London’s Brent crude climbed 83 cents, or 1.3%, to settle at $62.96. It rose 4.5% over the past three sessions.

“The overwhelming tendency to push the market up continues, and it’s aided this time by another stock market high, continued hopes for a positive U.S.-China outcome and indications that output from key shale patches may be weakening,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.

Wall Street’s best-known stock index, the Dow Jones Industrial Average, hit all-time peaks for a second straight session on Tuesday before consolidating gains after media reports suggesting U.S. and Chinese officials appeared serious enough to clinch a partial trade deal by considering rolling back more tariffs than initially said.

Pioneer Natural Resources (NYSE:PXD) Chief Executive Scott Sheffield, meanwhile, said he expects the Permian Basin, the top U.S. shale field, to “slow down significantly over the next several years.”

“I don’t think OPEC has to worry that much more about U.S. shale growth long term,” Sheffield said on Tuesday on a call with analysts, Reuters reported.

Shale has been the nemesis of OPEC over the past five years after all-time highs in domestic U.S. production prompted the cartel to cut output to keep global prices stable.

But U.S. producers are now under pressure to trim spending and return profits to shareholders through dividends and share buybacks. The number of rigs drilling for oil in the United States has declined about 21% over the last year, according to last week’s rig-count report from Baker Hughes.

Analysts with a bullish view on oil, such as Price Futures Group’s Phil Flynn, have been arguing almost daily in recent weeks that the seemingly infinite threat from shale has been overplayed.

Pioneer’s Sheffield seemed to agree in principle to such arguments, saying that despite new production coming from Norway, Brazil and Guyana in the next year, “There’s not much coming on after.”

“We’re becoming more optimistic that we’re probably at the bottom end of the cycle” in oil prices,” he added.

Market participants are also looking out for inventory data on U.S. crude and petroleum products due later in the day.

The American Petroleum Institute (API) will issue at 4:30 PM a snapshot of what the Energy Information Administration (EIA) will likely report as official petroleum supply-demand balances for last week. Analysts surveyed by Investing.com think crude stockpiles may have risen by as much as 1.5 million barrels for the week.

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