OPEC members are cutting production in an effort to drive up oil prices, but a robust US output has prevented any significant rally. U.S. West Texas Intermediate (WTI) crude futures (CLc1) were trading 73 cents lower at $48.05 a barrel.
WTI crude has "found itself vulnerable to heavy losses.as the rising drilling activity in the USA reinforced the oversupply fears", said Lukman Otunuga, research analyst at FXTM, in a note.
Saudi Energy Minister Khalid Al-Falih added to the tension last week when he said Saudi Arabia, the world's largest exporter of oil, will not "bear the burden of free riders".
On Friday, energy services firm Baker Hughes reported U.S. drillers added oil rigs for the ninth consecutive week.
Defying rising sentiment that oil markets remain oversupplied, some analysts say markets will tighten soon, arguing that the Opec-led cuts will start to bite only from next month, just as demand picks up as refineries return from current maintenance outages.
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The fact that USA crude inventories are breaking records every week and oil prices have failed to post any gains so far in 2017 offers the evidence that the comeback in the US oil industry is undermining the effectiveness of the OPEC deal. Meanwhile, given that Libya and Nigeria are exempt from cuts, a rebound in their production will increase Opec output even if other members stick to their quotas.
In a move to beat off competition but which contradicts the announced cuts, Opec's de-facto leader Saudi Arabia unexpectedly cut light crude prices last week. Opec producers have implemented 100 per cent of the agreed cuts as per latest data with Opec figures reflecting a cut higher than expected.
"An extension is needed to balance the market", an OPEC delegate said. At 631 rigs, this is the biggest count since September 2015. Between the months of August and the end of December previous year, the IEA believes that total OECD crude stocks dropped a rather impressive 120 million barrels. According to the IEA, Iraq will increase its output to 5.4 million barrels per day by 2022, which is significantly higher than the earlier estimates of an increase to 4.6 million bpd by 2021.