Oil prices drop amid glut concerns, US withdrawal from climate deal

In London August Brent the global benchmark, dropped 68 cents, or 1.3%, to $US49.95 - a loss of 4.9% for the week.

Brent crude oil eased by 3 cents to $50.73 a barrel by 1327 GMT, while USA light crude gained 14 cents to $48.46.

Commodity markets were absorbing news the United States would withdraw from the landmark 2015 global agreement to fight climate change, a move that fulfilled a major campaign pledge but drew condemnation from US allies.

He said the nation's oil production was still hovering around 1.5 million barrels per day, down from around 2.2 million bpd.

"This could lead to a drilling free-for-all in the USA and also see other signatories waver in their commitments", said Jeffrey Halley, senior market analyst at futures brokerage OANDA.

As OPEC and non-OPEC producers such as Russian Federation attempt to reduce inventories, the production in the United States has been rising.

"There is not much geopolitical risk premium priced into oil right now (but) if tensions do ratchet higher between the key OPEC producers, like Saudi Arabia, Iran and Iraq, then the market will start paying attention to this", said Virendra Chauhan, an oil analyst at consultants Energy Aspects.

Rystad Energy, the energy data warehouse, now predicts United States oil production grows so fast that an all-time high of 10 million barrels per day could be reached before December 31st this year.

Brent prices fell and USA oil made only marginal gains on Thursday despite a government report showing big declines in some US stockpiles and signs of strong demand, "the strongest single week's data for several years", according to Standard Chartered PLC.

"Investors continue to doubt the ability of OPEC to rebalance the oil market, with crude oil prices remaining under pressure amid further signs of rising USA oil production", ANZ bank said on Monday.

Oil prices are down some 10 percent since OPEC's May 25 decision to extend the cuts.

Oil slipped below US$50 per barrel last week as the agreement by OPEC and its allies to prolong output curbs for nine months disappointed some investors hoping for deeper cuts. It has been estimated that even if the number of rigs are not increased any more, the level of USA crude output would rise by approximately 785,000 barrels per day in the next couple of months.

Rising output from OPEC members Nigeria and Libya, which are exempt from the deal, is also undercutting the attempt to limit production.

But Jonathan Barratt, chief investment officer at Sydney's Ayers Alliance, said the USA decision to walk away from the climate agreement was not likely to impact oil markets. Meanwhile, if they extend the cuts further, they would risk losing market share to other producers, such as United States shale oil. All this growth stems from shale drilling, as the more modest growth from Gulf of Mexico deepwater fields is offsetting declines from other USA conventional oilfields.

  • Zachary Reyes