Oil prices dipped on Monday on signs that global fuel markets remained bloated despite OPEC-led crude production cuts that have been more successful than most initially expected.
Brent crude futures were trading at $56.62 per barrel at 0707 GMT, down 8 cents from their previous close.
West Texas Intermediate (WTI) crude futures were down 13 cents at $53.73 a barrel.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia have agreed to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017 in a bid to rein in a global fuel supply overhang.
While traders said that crude was well supported in the lower to mid-$50s per barrel due to the curbs, they pointed to a host of reasons that were preventing prices from rising further unless production is cut deeper or for a longer period.
In the US, rising drilling activity is pushing up production and undermining OPEC’s efforts to reduce output.
Drillers added eight oil rigs in the week to Feb. 10, bringing the total US count to 591, the most since October 2015, Baker Hughes said on Friday.
During the same week last year, when prices were around $30 per barrel, there were just 439 active oil rigs.
Underscoring the US fuel glut, traders are preparing to export gasoline from the US East Coast after months of heavy importing and local production swamped the region.
In Russia, which is participating in the cuts, there are signs that output may be falling but that exports remain high, as its producers shield their core export markets at the cost of lower domestic supplies or by cutting into inventories.
Given these trends, analysts say that OPEC might have to extend its cuts for a longer period than the currently planned first half of 2017.
But since global oil demand is expected to rise by between 1.3 million bpd and 1.5 million bpd in 2017, OPEC’s conundrum is that the longer and deeper it cuts, the more it cedes market share to competitors, as seen in the two world’s biggest oil consuming markets.
In the US, OPEC is facing the rising flood of shale- driven production.
Source: Arab News