On Monday, oil dropped after United States shale drillers added additional rigs last week. Oil prices still hung onto their highest since mid-2015, held up by the extension of the output cuts by OPEC and other key producers. U.S. drillers added two oil rigs in the week to Dec. 1, bringing the total count to 749 rigs, the highest since September.
February Brent crude futures dropped 62 cents at $63.11 a barrel by 1230 GMT and U.S. West Texas Intermediate dropped 63 cents at $57.73 a barrel. Last month, the Brent price hit a two-year high of $64.65 and since has generated record investments by fund managers.
The U.S. rig count, which is an early indicator of future output, has spiked up from 477 active rigs last year after energy companies increased spending plans for 2017. In 2017, drillers were encouraged to increase activity since crude prices began to recover following the Organization of the Petroleum Exporting Countries (OPEC) and other main producers, including Russia, decision to cut production a year ago. The OPEC and producers agreed to extend the cut of 1.8 million barrels per day (bpd) until the end of next year, last week.
“Market reaction has been positive so far. There are only two worrying aspects … One is that Iraq’s indiscipline has not been discussed, at least not publicly,” said strategist Tamas Varga, referring to Baghdad’s compliance with output cuts.
“The second is OPEC’s own forecast for next year. They are by far the most bullish on 2018, with the annual call on their oil at 33.42 million bpd,” Varga added.
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The latest agreement for the extension of the cuts permits producers to exit the deal early if the market heats up. Russian officials voiced concerns that the cuts may provoke U.S. shale oil companies to pump more, an ongoing issue for the OPEC.
In September, U.S. output increased to 9.5 million bpd, the highest monthly output since April 2015 of 9.6 million bpd in, according to government data.