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Crude Slips as Report Highlights Rising U.S. Supply

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Oil futures edged lower Monday, as a report from a global energy watchdog highlighted rising oil production in the U.S.

The International Energy Agency said it expects the U.S. to overtake Saudi Arabia as the world's biggest oil producer by 2020, lifted by the shale oil boom that has sent U.S. output soaring. By 2030, the U.S. could become a net oil exporter, the IEA said.

"There's a lot of oil that we know about in the ground and they're finding ways to get it out," said Kyle Cooper, managing partner at IAF Energy Advisors in Houston.

Light, sweet crude for December delivery settled lower by 50 cents, or 0.6%, at $85.57 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled 33 cents, or 0.3%, lower at $109.07 a barrel.

The report underscores the abundance of oil stockpiles, particularly in the U.S., due to a combination of rising production and weak demand. U.S. oil output has risen 7% to 10.76 million barrels a day over the last year. Fuel use remains weak amid high unemployment and rising vehicle efficiency.

The IEA suggested that rising U.S. production will mean that the U.S. will have to import less oil from the Organization of the Petroleum Exporting Countries. The U.S. will import less than 2 million barrels a day in 2035, it said, only about a quarter of what it does today.

Early estimates suggest that the oil inventories will see another rise in data due later this week from the Energy Information Administration. Commercial oil stockpiles currently stand at nearly 375 million barrels, about 11% higher than stockpiles at this time a year ago.

The report comes as the oil market appears less moved by the prospect of Middle East supply disruptions. Prices failed to budge higher Monday despite reports that Israeli tanks fired into Syria, the latest sign that Syria's civil war is spilling over to its neighbors.

Instead, broader macroeconomic headlines have captured the market's attention in recent months. Oil prices have wavered between $85 and $90 a barrel for much of the last month, after touching $100 a barrel as recently as September, amid uncertainty over the outlook for the euro zone and the U.S.

Also weighing on oil prices and other risky assets is uncertainty over the so-called fiscal cliff, the package of tax hikes and spending cuts set to automatically kick at the end of the year if Congress fails to act. Economists worry that the measures could send the economy back into recession, which would curb demand for oil.

"This week's trade is likely to be driven by macroeconomic developments mainly out of the U.S. and the euro zone," said Jim Ritterbusch, head of the trading-advisory firm Ritterbusch and Associates.

Front-month December reformulated gasoline blendstock, or RBOB, settled lower by 2.29 cents, or 0.9%, at $2.6763 a gallon. December heating oil settled lower by 0.63 cent, or 0.2%, at $2.9992 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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