Published: Tue, March 14, 2017
Markets | By Terence Owen

Oil extends decline as USA drilling accelerates amid Opec cuts

The EIA data forecasts recent and near-term drilling activity in seven major oil-producing regions that have driven about 90 percent of USA output growth in recent years.

The national average has already started to totter, while SC - one of the cheapest states in the US - is holding below $2/gal. California, on the other hand, is breaking above $3/gal for the first time since 2015 amid refinery issues and tighter fuel standards. WTI on Monday traded down 0.2 percent at $48.39 a barrel as of 9:25 a.m. London time. "However, the key to market performance this week is the response to the US lift in rates".

Data from oilfield services provider Baker Hughes on Friday revealed that the number of active USA rigs drilling for oil rose by 8 last week, the eighth weekly increase in a row.

"Steep price falls in the last two days amid building the USA inventories show that the market remains concerned about the supply demand balance". The contract lost $2.86, or 5.4 percent, to $50.28 on Wednesday, the biggest decline in percentage terms since February 2016.

"The data from the last two reports suggests they were getting nervous", Tim Evans, an energy analyst at Citi Futures Perspective in NY, said in a telephone interview.

Shale firms need OPEC to succeed in reducing global oil stockpiles and raising prices.

"With the market still digesting the big increase in inventories, oil prices are likely to remain under pressure today", ANZ bank said in a note. "Is price the only consideration when it comes to the decision of extending cuts?"

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"There's been a loss of confidence", Evans said.

The slump in prices has occurred as more rigs are deployed to look for oil in the United States and as crude inventories in the U.S., the world's biggest oil consumer, have surged to a record.

Overshadowing the curbs, United States crude inventories surged last week by 8.2 million barrels. EIA expects drillers to raise production by 70,000 barrels a day in April.

The US crude oil rig count peaked at 1,609 in October 2014.

There are severe civil and criminal penalties for sharing information about future output and prices let alone any attempt to divide market shares among producers ("The Antitrust Laws", Federal Trade Commission, undated).

Speculators had built record long positions on the hopes that the OPEC production cut will balance the market. USA law bars them from such action.

Craig Erlam, senior market analyst at Oanda, added: "Of course, these changes take time to have an impact and non-Opec compliance is still a little low but with an extension to the deal in doubt, prices are reverting back towards pre-deal levels, although I doubt we'll get close to the lows any time soon".

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