US oil dips on rising drilling, global markets firm

OPEC countries, Russia maintain crude supply reduction

US oil prices dipped on Monday, easing from two-year highs on the prospect of increased US output, although global markets were slightly better supported by expectations a supply cut led by the Organization of the Petroleum Exporting Countries (OPEC) would be extended.

US West Texas Intermediate (WTI) crude futures were at $58.72 a barrel as of press time Monday, down 23 cents, or 0.4 percent, from their last settlement. Brent crude futures LCOc1 were at $63.85 a barrel, virtually unchanged from their last close.

US crude production COUT-T-EIA has risen by 15 percent since mid-2016 to 9.66 million barrels per day (bpd), not far from top producers Russia and Saudi Arabia, and increased drilling activity for new production means output is expected to grow further, traders said.

US energy companies last week added oil rigs, with the monthly rig count rising for the first time since July to 747 active rigs, as producers are attracted by climbing crude prices.

WTI touched a 2015-high on Friday at $59.05 a barrel, partly driven higher by the closure of the 590,000 bpd Keystone pipeline connecting Canada’s oil sand fields with the US following a spill, which reduced stocks.

In global markets, Brent crude oil futures were stronger than WTI due to an effort by the OPEC and a group of other producers, including Russia, to withhold 1.8 million bpd of output from January 2017.

The deal to cut output expires in March 2018, but OPEC will meet on November 30 to discuss its policy.

Russian Energy Minister Alexander Novak said on Friday that Russia would discuss the details of an extension on November 30, but made no mention of how long this should last beyond its March expiry.

The uncertainty of how committed Russia is to ongoing cuts as well as rising production in the US mean crude prices are being prevented from rising much further, traders said on Monday.

“There is plenty of room for disappointment...Should the outcome of the next OPEC meeting fall short of expectations, the large net-long speculative position on oil futures can unwind, sending prices lower and volatility higher,” French bank BNP Paribas warned in a note.