By Sebastine Obasi, with Agency report
OIL prices dropped yesterday as signs of increasing United States production outweighed optimism that many other producers, including Russia, were sticking to a deal to cut supplies in a bid to bolster the market.
Benchmark Brent crude slipped by 96 cents at $56.14 a barrel, while U.S. crude futures slipped by 88 cents as it traded at $53.11 per barrel.
“We see the optimism surrounding the Organisation of Petroleum Exporting Countries, OPEC and non-OPEC production cuts being counterbalanced by fears of higher U.S. crude production as the higher rig count of last Friday still weighs,” said Hans van Cleef, Senior Energy Economist at Amsterdam, Netherlands – based ABN Amro Bank. A stronger U.S. dollar also weighed as the currency surged on expectations of faster U.S. interest rate hikes this year, making it more expensive to hold dollar-denominated commodities.
Last week, U.S. energy companies added oil rigs for a 10th week in a row to 529, Baker Hughes data showed, extending a recovery in activity into an eighth month. Analysts at London, Barclays Bank, said they expected the U.S. rig count to rise to 850-875 by the end of the year, with spending on exploration and production set to increase 27 percent in North America.
This raised concerns that U.S. production is increasing and undermining efforts by OPEC and others to cut output. In Iraq, OPEC’s second-biggest producer, a record 3.51 million barrels per day (bpd) were exported from its port in Basra in December, officials said, although they added that the country would comply with its commitment to lower output by an average of 210,000 bpd from January.
Sources also said that Iraq’s State Oil Marketing Company (SOMO) had given three buyers in Asia and Europe full supply allocations for February. On the other hand, Russia, one of the world’s largest crude producers, appeared to be sticking to the agreement to cut. Russian energy market sources said the country’s output had fallen by 100,000 bpd in the first week of the month. However, analysts at Austria – based oil and gas independent research centre, JBC Energy were optimistic about a tighter oil market in 2017.
“Concerns regarding the sincerity, depth and duration of announced production cuts notwithstanding, most analysts, including us, see tighter-than-previously-envisaged balances for 2017,” they said.