On Monday, oil prices dropped as rising U.S. drilling activity showed an increase in American production, offsetting OPEC-led output cuts.
Brent crude futures, the international benchmark for oil prices, dropped 10 cents to $63.30 a barrel by 1115 GMT. U.S. West Texas Intermediate (WTI) crude futures dropped 26 cents to $57.10 a barrel. Brent and WTI closed at over 1 percent higher on Friday, and oil prices have gained well over a third from lows from earlier this year.
The production cuts by the Organization of the Petroleum Exporting Countries and a group of non-OPEC producers are responsible for the gains, which have been in place since the beginning of 2017. OPEC efforts can be damaged by the increased output from the United States, which is not partaking in the deal to hold back on production. The United States added two new drilling rigs in the week to Dec. 8 bringing the total number of rigs to 751, the highest level since September
“The largest concern for investors currently remains the rise in the U.S. rig count,” said Shane Chanel, equities and derivatives advisor.
An increase in rig counts indicates an increase in U.S. crude production, already showing increases by over 15 percent since mid-2016 of 9.71 million barrels per day (bpd). That’s the max since the early 1970s, and near output levels of the top producers, Russia and Saudi Arabia. The OPEC began withholding supplies in January, and last month announced an extension through the remainder of 2018.
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The United Arab Emirates’ energy minister had stated that the OPEC intends in June to announce an exit strategy from the cuts, although he explained that this did not mean the pact would end at that time. Over the weekend, Kuwait’s oil minister stated that producers would before June consider the option of an exit strategy.