Oil prices were flat, yesterday but remained on an unstable footing as increase in United States, U.S. drilling activity undercut an Organization of the Petroleum Exporting Countries, OPEC-led push to tighten supply.
Recall that the price of crude had last week, closed at $49.48 per barrel, a sharp drop owing to OPEC and some non-OPEC’s producers decision to further extend production cuts to about 1.8 million barrels per day (bpd) until March 2018.
Trading was subdued due to public holidays in China, U.S and Britain, but the market remains unsettled following uncertainty over whether the impact of OPEC’s latest action to curb oversupply would be enough to support prices.
Brent crude futures were trading five cents higher at $52.20 per barrel. The contract ended the previous week down nearly three percent. U.S. West Texas Intermediate (WTI) crude futures were four cents higher at $49.84 per barrel.
However, Commerzbank analyst, Carsten Fritsch, sees yesterday’s price moves as little more than “intraday noise” , adding that hints of deeper cuts or a longer extension from OPEC left the market deflated after the final decision.
“They increased expectations to such an extent that nine months was a disappointment.” He noted that, high compliance with the cuts so far was unlikely to last, adding to worries about whether the pledge would dent physical oil stockpiles that remain near record levels, saying, “The pain for OPEC will increase to such a point that 100 percent compliance is unrealistic.”
Meanwhile, despite ongoing cuts, oil prices have not risen much beyond $50 per barrel.
OPEC’s success in drawing down inventories may hinge on output in the U.S, which is not participating in the cuts. U.S. production has soared 10 percent since mid-2016 to more than 9.3 million bpd, close to levels in major producers Russia and Saudi Arabia.
U.S. drillers have added rigs for 19 straight weeks, bringing the total 722, the highest number since April 2015 and the longest run of additions on record, according to energy services firm Baker Hughes Inc.
Almost all of the recent U.S. output increases have been onshore, from so-called shale oil fields. Even if the rig count did not rise further, Goldman Sachs said it estimated U.S. 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.