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Market report: Oil slips off multi-year highs as IEA predicts 'explosive' US shale growth in 2018

Tom Rees
Brent crude slipped back from $70 per barrel this week - Getty Images

Crude slipped further from multi-year highs yesterday on fears that rallying prices have left the door open to “explosive” production growth in the US shale industry flooding the market with oil once again.

While declining production in stricken major producer Venezuela is helping to rebalance the market, shale drillers rushing to join the sector’s next boom in the oil rich Permian Basin in the US will offset oil cartel Opec’s efforts to slash output, the International Energy Agency warned.

The Paris-based organisation predicted that the “big 2018 supply story is unfolding fast in the Americas” and a return to the “heady days” of the first shale surge could see the US leapfrog Saudi Arabia and Russia as the world’s largest oil producer.

Shale producers abandoned rigs in the US when oil prices crashed below $30 per barrel in early 2016 amid a glut of oil but operations in the US have become leaner and cheaper in response to the unforgiving low oil price environment.

Under pressure from oil revenues drying up, 14-nation-strong Opec has extended a production cuts deal twice to shift the glut but some of the oil cartel’s members believe that crude climbing to $70 per barrel this year may have lifted prices out of the sweet spot that keeps a cap on shale drilling.

The IEA’s warning sent benchmark Brent crude sliding back to $68.50 per barrel, a 1pc drop, as prices suffered their first weekly decline in over a month.

Commodity value: Brent Crude Oil

Elsewhere, investors in big ticket retailers took Carpetright’s profit warning as the “canary in the coal mine” for the sector, dragging B&Q owner Kingfisher and sofa seller DFS into the red.

Although Carpetright has been dogged by company-specific problems, the “degree” of the warning and management ringing alarm bells on declining footfall could impact Kingfisher, Northern Trust analyst Ameet Patel told clients.

The warning slashed Carpetright’s valuation by 39pc and sent peers Kingfisher and DFS sliding 7.9p to 336.1p and 8.8p to 197.2p, respectively.

The UK’s biggest bank HSBC inched up 0.1p to 788.4p after brushing aside a £72.7m settlement with the US Department of Justice following an investigation into currency markets rigging.

Wall Street analysts at Morgan Stanley talking up the benefits of consolidation in the short-haul airline sector helped low-cost carrier easyJet fly 71.5p higher to £15.85, its highest share price in just under two years.

Monarch, Alitalia and Air Berlin all collapsed last year under the weight of fierce competition and hopes that easyJet can take advantage of its peers’ woes has boosted its shares 52pc in a year.

InterContinental Hotels Group jumped 124p to £49.28 following an upgrade to “buy” from Goldman Sachs while Fresnillo gained 28.5p to £14.04 as gold prices continued to strengthen.

On the junior market, tech venture capital firm Sure Ventures, which plans to invest in virtual reality and internet of things companies, surged 10p to 110p on its first day of trading.

The pound’s 0.1pc dip to $1.3860 took the shine off its fifth straight weekly rise against the sinking dollar, its best winning streak in three years. Sterling pulling back from its post-Brexit vote highs alleviated the pressure on the FTSE 100 with its 29.83-point gain to 7,730.79 putting an end to the index’s four-day losing run.