Oil is poised for its first weekly decline in more than a month as traders await proof that OPEC and other producers are following through on promises to cut production.
Futures slipped as much as 1.4 per cent in New York and were headed for a weekly decline of more than 2 per cent. Saudi Arabia reduced output to less than 10 million barrels a day and will consider renewing its pledge to trim supply in six months, according to Energy Minister Khalid al-Falih. Still, until monthly production data is released, "these claims cannot be verified", according to Commerzbank. The UAE doesn't intend to reduce output more than was agreed upon with OPEC in November and a tanker is said to sail to Libya's Zawiya port to load Sharara crude.
Oil has advanced since the deal among members of the Organisation of Petroleum Exporting Countries and 11 other nations to temper global supply. It has been unable to sustain its rally above $US55 amid concern that rising prices will spur more production. While Middle East producers including Saudi Arabia have signalled they're sticking to the pledged reductions, the US recently raised this year's output forecast, though explorers reduced drilling rigs to break a 10-week climb in additions, while production rose to the highest level since April last week.
"We're seeing strong compliance from the usual suspects, the Saudis and their Gulf counterparts," John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, said by telephone. But US output rose by 176,000 barrels a day last week and "the exempted countries are going gangbusters in production and exports", he said.
West Texas Intermediate for February delivery fell 55 cents to $US52.46 a barrel at 1.51pm on the New York Mercantile Exchange. Total volume traded was about 15 per cent below the 100-day average.
Brent for March settlement slid 50 cents to $US55.51 a barrel on the London-based ICE Futures Europe exchange. The global benchmark was at a premium of $US2.26 to March WTI.
Shale explorers reduced rigs for the first time since October, pausing an expansion to the highest level in a year that's seen the rig count rising from its low point in May. The increase has helped fuel a rebound in US oil production.
Drillers cut seven oil rigs in the week to January 13, bringing the total rig count down to 522, compared with 515 rigs seen a year ago, according Baker Hughes.
Analysts at Simmons & Co, energy specialists at US investment bank Piper Jaffray, this week forecast the total oil and gas rig count would average 765 in 2017, 879 in 2018 and 990 in 2019. Most wells produce both oil and gas. That compares with an average of 509 in 2016 and 978 in 2015, according to Baker Hughes data.
Energy firms in Canada more than doubled the number of rigs drilling for oil this week to the highest level in almost two years as producers returned en masse from Christmas breaks and crude prices remain near 18-month highs. Drillers added 89 oil rigs during the week ended January 13 bringing the total count up to 170, the highest level since February 2015, data from Baker Hughes showed.
The OPEC supply deal has only been in effect for two weeks, and the group will adopt compliance mechanisms at a meeting in Vienna on January 22, OPEC secretary-general Mohammad Barkindo said in Abu Dhabi on Friday.
The caps on supply, together with rising demand and natural decreases in output in some countries, will help balance the market and support prices, al-Falih said at an energy conference in Abu Dhabi on Thursday. The last time Saudi production came in below 10 million barrels a day was in February 2015, according to data compiled by Bloomberg.
"The markets are trying to get a sense of what sort of compliance we will get," Abhishek Deshpande, chief energy analyst at Natixis in London, said. Producers are seeing that oil prices have not climbed to $US60 yet, "and if they want that, they must provide the market with confidence".
Oil-market news:
- Kazakhstan may not be able to extend its commitment to helping OPEC curb global oil supply into the second half because its giant new field will accelerate production.
- China's oil imports last year expanded at the fastest pace in six years as the cheapest crude in more than a decade triggered stockpiling and independent refiners accelerated purchases.
- Royal Dutch Shell oil workers began a strike in Gabon after talks failed.
With Reuters