Oil slips on US drilling but OPEC cuts support market

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Oil prices slipped on Monday, with US crude easing from two-year highs on prospects for increased output.

Losses were limited though as expectations that OPEC and other key exporters will agree this week to extend production limits provided support.

Benchmark Brent crude oil LCOc1 was down 20 cents at 63.66 a barrel US dollars by 0820 GMT. US light crude was 45 cents lower at 58.50 US dollars.

Weak Chinese stock market data also weighed on oil futures markets, traders said.

US crude oil production C-OUT-T-EIA has risen by 15 percent since mid-2016 to 9.66 million barrels per day (bpd). /VCG Photo

US crude oil production C-OUT-T-EIA has risen by 15 percent 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 likely to grow further.

US energy companies last week added oil rigs, with the monthly rig count increasing for the first time since July, to 747 active rigs, as producers are attracted by rising crude prices.

US crude oil touched 59.05 US dollars a barrel on Friday, its strongest since mid-2015, partly driven 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.

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Global oil prices have risen sharply in recent months thanks to efforts by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, to limit output.

OPEC and its allies cut production by 1.8 million bpd in January and have agreed to hold down output until March. OPEC will meet on Thursday to discuss the policy and most analysts expect some form of deal 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.

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“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 said.

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,” said Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas. “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.”

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Source(s): Reuters