Oil Sinks on Output Complications

Darnell Taylor
March 13, 2018

According to Baker Hughes energy services firm, USA energy companies cut oil rigs for the first time in nearly two months, with drillers cutting back four rigs, to 796.

Oil markets climbed on Monday on the back of a drop in the number of United States rigs drilling for more production and as the USA economy continues to create jobs, which industry hopes will drive higher fuel demand.

The reduction came as gross short positions on the New York Mercantile Exchange climbed to their highest level in almost a month.

At 0640 GMT, May WTI crude oil is trading $61.86, down $0.06 or -0.10% and June Brent crude oil is at $65.35, up $0.08 or +0.12%. Both the Brent and WTI saw a massive decline as they enter the market this week with a solid 1% decline. In February, even Saudi Arabia's state oil company considered participating in these flows via a US unit, before determining it wasn't economically viable at the time. "In the shale plays, the expected April production will increase oil at the annual rate of 1.5 million" barrels a day.

Output from the USA has already risen by 23 percent since mid-2016 to 10.37 million bpd. "That figure was close to in line with the February average weekly increase of 91,000 [barrels a day] and is still more than four times greater than the pace of production growth in 2017", said Tyler Richey, co-editor of the Sevens Report.

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The Organization of the Petroleum Exporting Countries (OPEC), together with a group of other producers led by Russian Federation, has been withholding production since the start of 2017 to prop up prices.

Oil markets continued to flip back and forth over the past weeks due to excless supply, increasing US production and soaring global demand.

The split is driven by differing views over whether $70 a barrel would send US shale companies into a production frenzy that could cause prices to crash.

Crude oil prices are lower today after falling yesterday. Investors' bullish wagers on oil fell last week for the first time in three weeks. Some of the pressure is coming from a recovery in the U.S. Dollar, which could affect foreign demand.

"Rising production and inventory in the United States has been reducing fund sentiment since it peaked at the end of January", ING commodities analysts said in a note.

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