Oil prices continue decline, sliding into bear market territory

Slumping oil prices moved back into bear market territory Tuesday, dropping to a nine-month low, as concerns worsen that OPEC is failing to ease a global supply glut.

West Texas Intermediate crude, the U.S. benchmark, settled at $43.23 a barrel in New York, down more than 20 percent from its highest close this year, in February.

Adding to an oversupplied market are Libya, which is pumping the most in four years, and shale drillers that are staging the longest drilling ramp-up on record, much of it in the Permian Basin of West Texas.

“We still have a lot of oil,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The bottom line is that the glut that’s here in the United States doesn’t look to be” slowing anytime soon, he said.

Meanwhile traders are hoarding an increasing amount of oil in tankers. All that crude is hindering efforts by the Organization of Petroleum Exporting Countries and its allies to reduce stockpiles to the five-year average.

“The market’s in a game of chicken with OPEC and with Saudi Arabia in particular,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “Unless and until they respond, we’re going to continue to grind lower.”

On Wall Street, the S&P 500 Energy Index declined as much as 2.3 percent, with Irving-based Exxon Mobil slipping as much as 1.6 percent, while Royal Dutch Shell Plc and BP Plc both fell more than 2 percent.

American drivers aren’t helping either. Oil plunged below $45 a barrel last week after the U.S. Energy Information Administration said gasoline supplies surged to the highest level since mid-March at a time when summer demand should be bringing inventories down.

Last week, U.S. drillers increased the oil rig count for the 22nd straight week to the highest level since April 2015, according to Baker Hughes. American crude production has expanded to 9.33 million barrels a day through June 9, near the highest since August 2015, EIA data show.

At the same time, an increase in the number of drilled-but-uncompleted wells could drive oil prices down further, analysts said. At the end of May, there were 5,946 so-called DUCs, the most in at least three years, according to estimates by the EIA. In the last month alone, explorers drilled 125 more wells in the Permian Basin than they would open, meaning production is poised to surge further when they turn the spigots on.

“People are getting a little fatigued waiting for the production cuts to have effect,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. Traders are “very nervous about the near-term prospects.”

This story was originally published June 20, 2017 at 4:23 PM with the headline "Oil prices continue decline, sliding into bear market territory."