Oil fell in New York, reversing earlier gains, after the head of the International Energy Agency (IEA) predicted a rebound in U.S. supply.

Futures dropped 1.7% after IEA Executive Director Fatih Birol said that higher oil prices will trigger a “significant” increase in U.S. shale output as OPEC and other producers rein in supply. A day earlier, OPEC’s biggest exporter, Saudi Arabia, said deeper-than-planned production cuts and robust demand were helping the market re-balance.

Oil has gained since the Organization of Petroleum Exporting Countries and 11 other nations agreed late last year to trim supply, but a rally above $55/bbl was short-lived amid concern rising prices would spur more production elsewhere. While producers from Saudi Arabia to Russia have signaled they’re implementing the reductions, U.S. shale output next month is forecast to climb to the highest level since November.

Wednesday’s price decline reflects “comments from the IEA warning that higher prices could incentivize more investment opportunity in the U.S. and bring more production,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. People may be viewing the comments as a “pre-release” of the IEA’s oil-market outlook due Thursday, he said.

West Texas Intermediate for February delivery slid 87 cents to $51.61/bbl on the New York Mercantile Exchange at 8:06 a.m. local time. Total volume traded was about 9% above the 100-day average. The contract increased 11 cents to $52.48 on Tuesday. There was no settlement Monday because of a U.S. public holiday. Prices have averaged about $52 since the start of December.

Brent for March settlement declined 85 cents to $54.62/bbl on the London-based ICE Futures Europe exchange, trading at a $2.18 premium to WTI for the same month. The global benchmark crude lost 39 cents to $55.47 on Tuesday.

“U.S. shale-oil production will definitely react strongly,” the IEA’s Birol said Wednesday in a Bloomberg Television interview in Davos, Switzerland. At $56 to $57/bbl, “a lot of shale plays in the United States would make perfect sense to produce.”

U.S. crude stockpiles dropped by 1 MMbbl last week, according to a Bloomberg survey before an Energy Information Administration report on Thursday.

Stockpiles are at 483.1 MMbbl, the highest seasonal level in more than three decades, according to weekly data compiled by the EIA since 1982. Inventories at Cushing, Okla., the delivery point for WTI and the nation’s biggest oil-storage hub, probably fell by 500,000 bbl last week, according to the Bloomberg survey.

Source: www.worldoil.com