Oil prices fall as US drilling fails to relent

May 30, 2017, 06:20
Oil prices fall as US drilling fails to relent

West Texas Intermediate for July delivery rose 0.9 percent, or 45 cents, to $50.24 a barrel on the New York Mercantile Exchange at 11:48 a.m.

The price rise this year has spurred growth in the US shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global crude stocks still near record highs. Total volume was about 76 percent below the 100-day average due to public holidays in the USA and the U.K. Prices fell 1.1 percent last week.

Oil prices rose ahead of an OPEC meeting on Thursday that is expected to extend output cuts into 2018, adding at least nine months to an initial six-month curb in the first half of this year.

Brent crude futures LCOc1 were trading down 15 cents, or 0.3 percent, at $52.00 per barrel at 0253 GMT. The contract gained 69 cents, or 1.3 percent, to settle at US$52.15 on Friday. But the decision did not go as far as many investors had hoped.

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"They increased expectations to such an extent that nine months was a disappointment", Fritsch said.

High compliance with the cuts so far was unlikely to last, he said, adding to the concern about whether the pledge would dent physical oil stockpiles that remained near record levels.

OPEC's Success depends on the U.S. Post-meeting, however, financial markets sold off oil after the production cut extension agreement largely due to the belief that not enough had been done to rid the market of the growing supply glut. USA output of more than 9.3 million bpd is close to levels in major producers Russian Federation and Saudi Arabia. United States explorers added two rigs last week to 722, the highest level since April 2015, Baker Hughes said Friday.

"We will see oil production tightening from the third quarter and it's highly likely that prices will rebound", Hong Sung Ki, a commodities analyst at Samsung Futures, said by phone from Seoul.

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Most of the USA production is owing to growing number of onshore resources, also called as shale oil fields.

Even (Taiwan OTC: 6436.TWO - news) if the rig count did not rise further, Goldman Sachs (NYSE: GS-PB - news) said it estimated USA output would increase by 785,000 bpd between the fourth quarter of 2016 and the fourth quarter of 2017 across the Permian, Eagle Ford, Bakken and Niobrara shale plays.

Analysts say that key to reining in ongoing oversupply will be to reduce bloated global fuel inventories.

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