LONDON—Oil traders are grappling with a conundrum.

U.S. crude oil inventories have fallen for eight consecutive weeks to the lowest level since the beginning of last year. The pace at which producers have been adding drilling rigs to boost output has slowed to a crawl. And crude demand in the U.S. from motorists driving off on their summer holidays has surpassed expectations.

All of these reasons would historically be supportive for prices. But instead the benchmark West Texas Intermediate (WTI) U.S. oil contract has slumped to its biggest discount to its international rival Brent since 2015, meaning many oil producers in the U.S. are earning about $4—or 8%—less per barrel than those operating in the North Sea or west Africa.

Behind this, analysts and traders say, is seemingly unstoppable U.S. oil production. Those betting the industry will continue ramping up output are—for now—firmly winning the biggest debate in the oil sector regarding just how much production, led by the shale revolution, can grow despite prices languishing below $50 a barrel.

“The train has left the station in terms of shale,” said Gary Ross, head of Pira Energy, a unit of S&P Global Platts.

The so-called Brent-WTI spread, which measures the price difference between the two big crude markers, is just one indicator that points to traders betting that U.S. shale output will grow in excess of 1 million barrels a day (MMbbl/d) next year, or enough to meet about 75% of anticipated global demand growth.

With the price of WTI weakening, producers may seek alternative ways to sell their oil for greater profits. In theory, the rising discount of WTI should allow more crude to be exported from the U.S. to overseas refiners, as the spread covers oil storage and transportation costs for those selling surplus barrels.

Ross said that while there will be “substantial” U.S. shale growth, in order to “evacuate” these barrels, a wider spread is needed to make the trade work as U.S. output grows.

This scenario is not an unlikely prospect. Despite a drop of more than 10% in U.S. benchmark crude prices this year, Norwegian consultancy Rystad Energy said there was little evidence companies were pulling back on production. They now see total U.S. output climbing 1.1 MMbbl/d to reach 10.6 MMbbl/d in 2018, a significant uplift from the 10 MMbbl/d they were forecasting at the start of 2017.

Shale companies themselves believe the high growth levels will continue, as suggested by the oil futures market. These producers need to hedge their planned output to guarantee enough cash to keep growing.

Brokers and traders say there has been a rush by U.S. shale producers to hedge WTI contracts around the $50/bbl mark for next year, keeping prices under pressure as they come into the market to sell. The vast amount of hedging is an indication they are betting on greater production from the industry.

The premium for WTI contracts in December 2018 over December 2017, for example, has shrunk to less than 75 cents/bbl from more than $2.30/bbl five weeks ago, a sign of producers moving to lock in prices for later months.

“We’re seeing the effect of continued producer hedging on WTI,” said JPMorgan analyst David Martin.

WTI is likely to come under further pressure in the coming months when 14 MMbbl are released by Washington from the country’s Strategic Petroleum Reserve. The SPR, which holds a total of 680 MMbbl, was built to shield the U.S. from supply disruptions after the Arab oil embargoes of the 1970s.

But as U.S. production has jumped in the past decade the country has a smaller import requirement, making the SPR a target for politicians in Washington looking to sell barrels to help plug budget gaps.

The Brent-WTI spread may widen further as the SPR barrels hit the market especially as supplies in the North Sea have tightened over the summer as producers carry out maintenance.

All of this is making life more complicated for the OPEC cartel that has attempted, in coordination with big producers from outside the group such as Russia, to mop up excess supplies and support prices by cutting 1.8 MMbbl/d.

Some analysts think that the only way to slow the shale juggernaut is to abandon the supply cuts agreement and allow prices to fall again, something that they believe could happen if OPEC’s willingness to keep cutting its own output weakens as U.S. production continues to fill the gap.

Martin at JPMorgan, who has one of the lowest forecasts for U.S. shale growth next year, estimating it will only rise by 300 Mbbl/d, believes compliance with the OPEC-led cuts will start to weaken by the end of 2018. This may push prices back toward $40/bbl. That could reduce pressure on WTI, but at the cost of lower output.

“We think [WTI] prices will average around $42 a barrel next year,” Martin said. “At that level you’re not going to see the kind of growth from shale we've had this year.”