Oil prices steady as rising U.S. output undermines OPEC cuts
Oil prices were little changed on Tuesday as the impact from expectations of an extended OPEC-led production cut was cancelled out by rising output in the United States.
Brent crude futures, the international benchmark for oil prices, were at $62.20 per barrel at 0301 GMT, 8 cents above their last close.
U.S. West Texas Intermediate (WTI) crude futures were at $56.50 a barrel, also up 8 cent from their last settlement.
Traders said they were avoiding taking on large new positions due to uncertainty in markets.
The Organization of the Petroleum Exporting Countries (OPEC), together with a group of non-OPEC producers led by Russia, has been restraining output since the start of this year in a bid to end a global supply overhang and buoy prices.
The deal to curb output is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss the outlook for the policy.
OPEC is expected to agree to extend cuts as storage levels remain high despite recent drawdowns, although there are doubts about the willingness of some participants to continue to restrict their production.
“If the OPEC/non-OPEC cuts continue, the stocks surplus will reduce to just some 50 million barrels above the 5-year average in 3Q 2018 (down from 140 million barrels above that average now) and prices will hit $65-70 per barrel,” energy consultancy FGE said on Tuesday.
Outside the group of producers voluntarily withholding output, the biggest headaches for OPEC has been rising U.S. drilling activity, led by shale oil producers.
Energy consultancy Westwood Global Energy Group said U.S. output would climb even faster than implied by the rising rig count, which has jumped from 316 rigs in mid-2016 to 738 last week, as producers get more productive per well.
“Westwood Global Energy forecasts an 18 percent increase in active rigs in 2018, but more rapid demand growth in certain service areas as operators focus on efficiency and delivering more for less,” the consultancy said.
For 2018, FGE warned potential supply disruptions during an already tighter market could trigger oil price spikes, but it added that the market could slump again towards 2019 as U.S. output continues to soar and OPEC and its allies at some point will stop withholding output.
“We see another big rush with (U.S.) production growth of some 1-1.5 million bpd in 2018 and 2019,” FGE said. It added that OPEC also “has some 1.5 million bpd of spare capacity (while) Russia and Kazakhstan could also add another 500,000 bpd”.
(Additional reporting by Keith Wallis; Editing by Richard Pullin and Joseph Radford)
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