On Monday, oil prices declined as increasing U.S. drilling activity and steady supplies from the Organization of the Petroleum Exporting Countries (OPEC) countries in spite of touted output reductions pressured already-bloated markets.
Prices for benchmark Brent crude futures were 29 cents, or 0.56%, below their last settlement at 0223 GMT, at $51.47 per barrel.
U.S. West Texas Intermediate (WTI) crude futures declined 38 cents, or 0.78%, at $48.40 a barrel.
Traders stated that prices came under pressure from increasing U.S. drilling and continuing high supplies by the Organization of the Petroleum Exporting Countries (OPEC) in spite of its pledge to reduce output by approximately 1.8 million barrels per day (bpd) together with some other producers like Russia.
“There is good, strong momentum to the downside,” futures brokerage CMC Markets said in a note on Monday.
U.S. drillers added 14 oil rigs during the week to March 17, bringing the total count up to 631, the most since September 2015, energy services company Baker Hughes Inc stated on Friday, extending a recovery that is expected to increase shale output by the most in six-months in April.
Therefore, U.S. oil production has increased to more than 9.1 million barrels per day (bpd) from below 8.5 million barrels per day (bpd)in June the previous year.
Reacting to the continuing surplus in markets, financial oil traders reduce their net long U.S. crude futures and options positions in the week to March 14, the 3rd consecutive cut, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
“This unwinding of position is both a cause and reflection of the big fall in crude oil prices when the cracks in the OPEC/non-OPEC deal emerged and when it seems like it became evident shale oil is back and the new swing player,” said Greg McKenna, chief market strategist at brokerage AxiTrader.
Defying increasing sentiment that oil markets remain oversupplied, some analysts say markets will tighten soon, arguing that the OPEC-led reduction will only begin to bite from April, just as demand recover as refineries return from current maintenance outages.
“The cuts in OPEC production from the start of 2017 should start to show up between mid-March (now) and mid-April. Over the coming weeks we expect a sharp reduction in imports and increase in refining runs, which should lead to impressive crude inventory draws,” analysts at AB Bernstein said on Monday in a note to clients.
“The combination of falling imports and stronger crude runs should lead to substantial inventory cuts over the coming months,” they said.
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