Those analysts who warned that oil prices can’t go on rising forever now have the chance to tell everyone else “I told you so.” Brent and WTI have fallen by 9 percent since the highs they hit in late January, with the international benchmark slumping to US$64.42 today in midday Asian trade, and West Texas Intermediate falling to US$60.61 a barrel.
The problem with bubbles is that they are so irresistibly shiny while they expand, but sooner or later every bubble pops. Sometimes the bang can be deafening, which is what happened four years ago. This time it was quite loud, too.
Energy analyst Tom Kloza from the Oil Price Information Service warned at the end of January that there is a “tremendous speculative bubble.” He warned that the price is due for a serious correction. Reuters’ John Kemp noted that bullish bets on Brent, WTI, and the four most popular oil product futures are at all-time highs, which also suggests a correction is pending.
Now, the correction is taking place. It may have started with the stock market slip on Monday, prompted by higher bond yields, but it continued with the Energy Information Administration reporting that the United States have breached the 10-million-bpd oil production threshold for the second time since last November—and apparently much earlier than most observers expected.
U.S. drillers produced 10.25 million barrels of oil daily last week, the EIA said in its weekly petroleum report, and prices slumped further as doubts about the global oversupply—which is still lingering—were reignited. But the weekly report was just additional kindling to EIA’s latest Short-Term Energy Outlook, which forecast that U.S. oil production will top 11 million bpd in 2019.
Source:https://oilprice.com/Energy/Oil-Prices/The-Oil-Bubble-Has-Burst-What-Now.html