US oil dips on increased drilling, but Opec cuts support global markets
Oil prices dipped on Monday, with US crude easing from two-year highs on the prospect of increased output, although global markets were slightly better supported by expectations an OPEC-led supply cut would be extended.
Weak Chinese stock market data also weighed on oil futures markets, traders said.
US West Texas Intermediate (WTI) crude futures were at $ 58.47 a barrel at 0750 GMT, down 48 cents, or 0.8 per cent, from their last settlement. Brent crude futures were at $ 63.68 a barrel, down 21 cents, or 0.3 per cent.
US crude production has risen by 15 per cent since mid-2016 to 9.66 million barrels per day (bpd), not far from top producers Russia and Saudi Arabia, and increasing drilling activity for new production means output is expected to grow further, traders said.
US energy companies last week added oil rigs, with the monthly rig count rising for the first time since July, to 747 active rigs, as producers are attracted by climbing crude prices.
WTI touched a 2015-high on Friday at $ 59.05 a barrel, partly driven higher by the closure of the 590,000 bpd Keystone pipeline connecting Canada’s oil sand fields with the United States following a spill, which reduced stocks.
Longer cuts expected
In global markets, Brent was stronger than WTI due to an effort by the Organization of the Petroleum Exporting Countries (Opec) and a group of other producers, including Russia, to withhold 1.8 million bpd of output since January.
The deal to cut output expires in March 2018, but Opec will meet on November 30 to discuss its policy, with most analysts expecting some form of agreement to extend the cuts.
“Brent crude is undoubtedly pricing in good news (of extended cuts) and probably a little geopolitical risk premium,” said Hussein Sayed, chief market strategist at futures brokerage FXTM.
“We expect a six- or nine-month extension of the Opec deal to be agreed to on November 30, but the extension length is less important than the quota level … Member countries are unlikely to provide clarity on production levels in 2018,” Barclays bank said.
“Significant swing potential revolves around the flexible four: Saudi Arabia, Russia, UAE, and Kuwait. Other participants are unlikely to veer from their current output trajectories, in our view,” Barclays added.
Russian Energy Minister Alexander Novak said on Friday he would discuss details of an extension on Nov. 30, but made no mention of how long this should last.
“There is plenty of room for disappointment … Should the outcome of the next Opec meeting fall short of expectations, the large net-long speculative position on oil futures can unwind, sending prices lower and volatility higher,” warned French bank BNP Paribas.