Oil futures headed lower Monday as concerns over the potential for a sizeable increase in U.S. crude production outweighed support from Saudi Arabia’s energy minister, Khalid al-Falih, who voiced confidence that a major international deal to cut crude output has started to drain the market of excess supply.
On the New York Mercantile Exchange, March West Texas Intermediate crudeCLH7, -0.79% fell by 76 cents, or 1.4%, to $52.46 a barrel. March Brent crudeLCOH7, -0.34% on London’s ICE Futures exchange lost 56 cents, or 1%, to $54.93 a barrel.
Bottom line, the Organization of the Petroleum Exporting Countries “continues to be successful in keeping fundamental short sellers on the sidelines,” but that “doesn’t change the fact that the outlook for oil remains bearish,” said Tyler Richey, co-editor for The 7:00’s Report.
Oil prices had gained traction over the weekend after al-Falih said OPEC and non-OPEC nations who agreed to rein in output are showing “very good compliance.”
According to OPEC officials, OPEC and 11 non-OPEC producers have already cut 1.5 million barrels a day from the global oil market—over 80% of the amount pledged.
Read: Oil-output cuts going better than expected, OPEC says
But “even though global oil ministers are saying that there is widespread compliance, we won’t know for another couple of weeks” with industry data due out next month to offer some proof of compliance with a production cut deal that went into effect at the start of the year, said Richey, in his latest daily report. Official OPEC January production data will be released in mid-February.
And if U.S. production continues to rise at its current pace , then the “OPEC cuts will be effectively offset by Labor Day, resulting in a prolonged global production surplus,” Richey said.
Richey said U.S. production has climbed by of 40,000 barrels a day, based on the four-week moving average for the lower 48 states.
Data from industry group Baker Hughes BHI, -0.76% released Friday shows the number of working oil rigs in the U.S. climbed by 29 in the week ended Jan. 20 to a total of 551. Those figures point to a potential rise in oil production.
“Assuming the U.S. oil rig count stays at the current level, we estimate U.S. oil production would increase by 315,000 barrels a day between fourth quarter 2016 and fourth quarter 2017 across the Permian, Eagle Ford, Bakken and Niobrara Shale plays,” Goldman Sachs said in a note.
Goldman now forecasts oil production in the U.S. will grow by 265,000 barrels a day this year from last if the dormant rigs come back online between September last year and June.
Back on Nymex, prices for petroleum products traded lower along with oil. February gasoline RBG7, +0.14% traded at $1.561 a gallon, down less than half a cent, or 0.3%, while February heating oil HOG7, -1.05% fell 1.4 cents, or 0.9%, to $1.632 a gallon.
February natural gas NGG17, +1.15% was little changed at $3.206 per million British thermal units.