Economy

Oil falls as relentless USA drilling undermines Opec cut

Oil falls as relentless USA drilling undermines Opec cut

US West Texas Intermediate (WTI) crude futures were down 17 cents, or 0.3 per cent, at $49.63 per barrel. Trading volumes were comparatively low due to public holidays in the United States and the UK.

Reuters has reported that Oil prices slipped on Monday as further increases in USA drilling activity undercut an OPEC-led push to tighten supply.

Elsewhere, on the ICE Futures Exchange in London, Brent oil for July eased 0.32% at $52.34 a barrel. The contract gained 69 cents, or 1.3%, to settle at $52.15 on Friday.

Oil prices eased on Monday, with investors disappointed at major producers' decision to maintain their production cuts at the same level, rather than deepening them.

An initial agreement, in place since January, would have expired in June this year.

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The U.S. have opted to stay out of OPEC, and the production has escalated 10 percent since mid-2016, touching the levels of top oil producing countries such as Saudi Arabia and Russian Federation.

"For the next week the market's still going to be digesting OPEC's decision to take the easiest option and rollover the cuts for another nine months", said Edward Bell, analyst at Dubai-based Emirates NBD bank.

"The pain for OPEC will increase to such a point that 100 percent compliance is unrealistic", Fritsch said.

Despite the ongoing cuts, oil prices have not risen much beyond US$50 per barrel.

"What's concerning is what happens after the nine-month agreement because there isn't an exit plan, while US producers will probably boost output at least until the second half of this year". USA production has soared 10 percent since mid-2016 to more than 9.3 million bpd, close to levels in major producers Russian Federation and Saudi Arabia.

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Even if the rig count did not rise further, Goldman Sachs said it estimated that U.S. oil production "would increase by 785,000 barrels a day between [the fourth quarter of 2016 and the fourth quarter of 2017] across the Permian, Eagle Ford, Bakken and Niobrara shale plays".

Data from energy services company Baker Hughes showed on Friday that USA drillers last week added rigs for the 19th week in a row, the second-longest such streak on record, implying that further gains in domestic production are ahead.

Even if the rig count did not rise further, Goldman Sachs said it estimates that USA oil production "would increase by 785,000 bpd between 4Q16 and 4Q17 across the Permian, Eagle Ford, Bakken and Niobrara shale plays".

It's safe to say at this time that the direction of prices will be all about inventories and whether they fall as much as OPEC thinks and how fast they can get to key targets.

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