Oil dips as concerns linger over US production
Benchmark Brent LCOc1 was trading 21 cents lower at $50.56 barrel at 11:19 a.m.(1619 GMT). US light crude oil CLc1 was down 29 cents at $47.54.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia pledged to reduce their output by almost 1.8 million barrels per day (bpd) in the first half of the year.
A larger-than-expected fall last week in US crude inventories C-STK-T-EIA of 5.3 million barrels suggested cuts by OPEC and other producers were having an effect on the market, analysts said.
After a 1 percent rally on Thursday, “now we’re seeing a pullback in price,” said Andrew Lipow, president of Lipow Oil Associates in Houston.
“The market overall is trying to balance OPEC and non-OPEC production cuts with increasing production all over the world as they reduce their costs and improve their efficiency.”
U.S. crude production C-OUT-T-EIA has risen more than 10 percent since mid-2016 to more than 9.3 million bpd, close to the levels of top producers Russia and Saudi Arabia.
Norwegian consultancy Rystad Energy said US output had gained “significant momentum.”
U.S. output, excluding Alaska, would expand by 390,000 bpd from May 2017 to December 2017, assuming a U.S. light crude price of $50, they said.
Lipow said the market is also “slowly taking note” of increased production in Canada.
OPEC and other producers meet on May 25 to decide whether to extend cuts. Saudi Arabia, OPEC’s de facto leader, has said it expects an extension to the end of 2017 or possibly beyond.
Commerzbank said in a note it was sceptical about OPEC’s ability to support prices in the long term.
“Owing to the rapid recovery in US oil production, OPEC obviously only has limited influence on prices via supply curbs,” it said, adding an extension “is unlikely to be more successful than the cuts implemented so far in the longer-term.”
A weekly report by Baker Hughes (BHI.N) monitoring US rigs drilling for new production is due on Friday. RIG-OL-USA-BHI.
Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said the market will be watching for a possible drawdown in US rig counts.
“The market needs to be looking for a sign you’ve been getting a response [to lower prices] from US producers. That’s part of what’s going to keep this floor in on the oil prices,” he said. –Reuters