It was a rough week for the crude oil market.
After months of relative price stability, with WTI oil prices pinned between $50 and $55 per barrel, the floodgates of selling opened wide, as the record amount of long positions that was built up by speculators over the preceding weeks was, quite obviously, liquidated, as evidenced by sky-high volume in both futures and option contracts.
There were several catalysts: Crude oil inventories in the United States hit a new, record level, according the Department of Energy's weekly status report, which also showed U.S. oil production rebounding to within five percent of last year's record to nearly 9.1 million barrels per day.
Of course, the steadily rising oil rig count indicates that even more production is on the way, and it is not impossible to foresee overall production rising toward 10 million barrels per day over the course of the next 12 months.
There was also a large gathering of global energy interests in Houston, Texas this week that included officials from several OPEC countries and Russia.
The Saudi oil minister explicitly said that the accord adherents would not abide "free-riders," which is how he referenced the shale producers, in particular. Apparently, sideline discussions among this disparate group was even more pointed.
The production deal has been shouldered almost entirely by Saudi Arabia. If you take out their over-compliance, the OPEC compliance rate with the cutbacks is under 50%.
Up until this week, rosy rhetoric about limiting output from OPEC and Russia, among others, lifted prices and kept them elevated. At one point, a run at $60 per barrel looked possible, if not likely. Not anymore.
It is natural to think that the renewed sell-off would harden the resolve of producers to limit production, and restore the market balance, but that looks increasingly unlikely.