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Oil's Tumble

05 May 2017 by lberuti

In January, West Texas Intermediate (WTI) was trading at $56/barrel after OPEC curbs drove oil to its highest level in two years. But it looks as if the concerted efforts of the group to cut production is failing to clear a surplus of crude. Indeed, lured by rising prices, US shale drillers have been adding rigs every week recently and have pushed US oil production to its highest since August 2015. Libya – which is not an OPEC member - also announced that their production reached its highest since 2014. At the same time, US gasoline demand is pretty weak – in April it was down 2.7% from the same period a year earlier – and investors fear tighter credit conditions in China could depress growth in the coming months. Doubts over the ability of OPEC to durably influence prices are rising fast, and WTI has been on a downward trajectory over the last three. The pace accelerated yesterday with a 5% loss in a single session to $45.5. Even if the level of crude stabilised today, this was enough to spook investors, and they remarked the risk premium of the whole energy complex. This was true on both sides of the Atlantic, but US names were the most affected as a number of them are high beta credits.