Oil prices inch up as OPEC's production cut may extend

Under broader pressure from the so-called Brexit, crude oil prices moved lower early Monday on a hangover from higher US exploration and production work. USA shale oil investment declined very sharply following the drop in oil prices that started in 2014 and within a few months, production declined.

In the U.S., drillers added 14 oil rigs in the week to March 17, according to Baker Hughes.

As Opec's second largest producer, Iraq is crucial to the success of the deal signed last November to prop up oil prices.

There is no question that OPEC is going to have to extend or even increase production cuts, or prices could drop further. This means that speculators last week cut more than 150,000 contracts betting on firmer oil prices, a record high.

Benchmark Brent crude futures were down 55 cents at $51.21 a barrel, while U.S. West Texas Intermediate (WTI) crude futures were trading 73 cents lower at $48.05 a barrel. After forecasting production declines for 2017, US federal data instead show steady gains and production so far in March has been at around 9 million barrels per day. Oil production cut by 200,000 barrels per day is planned to be achieved by end of March, Novak said. Declining production in the Midwest, expansions in pipeline capacity, and more attractive imports due to narrowing crude oil price spreads all contributed to reducing movements of crude by rail. To reverse this trend, OPEC members have expressed interest in extending the production cuts beyond the original deadline of June to help regain control of oil prices. With the removal of restrictions on exports of domestically produced crude oil at the end of 2015, crude oil exports increased.

Sukrit Vijayakar of energy consultancy Trifecta said the rising drilling activity was "reinforcing the expectation of higher U.S. production offsetting (Opec's) supply cuts". The cuts came as prices tumbled below $50 a barrel for the first time this year, and anxious executives discussed rising USA rig counts at an industry meeting in Houston. USA shale companies are producing at a more vigorous pace than earlier in the year.

OPEC and its allies improved their collective compliance with cuts last month as deeper curbs from members offset weaker implementation from other producers, according to two delegates familiar with the conclusions of a meeting in Vienna on Friday. But shale oil companies' cost-cutting efforts of the past few years virtually ensure that we won't see a return to $100-per-barrel oil in the next few years.

  • Zachary Reyes