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Oil prices dip as weekly US rig count rises most since June

Oil prices

Oil prices fell slightly in trading on Friday on rising US production and a higher rig count. Encana photo.

Oil prices on track to rise for week

Despite expectations that OPEC will extend their supply cut pact to the end of 2018, oil prices fell on Friday on concerns that US crude production will continue to rise.

By 1:46 p.m. EST, benchmark Brent was down 34 cents to $63.59/barrel and US WTI dipped 36 cents to $56.81.  The Canadian Crude Index was down 33 cents to $41.80.

Earlier in the week, Brent hit $64.65/barrel, the highest since June 2015 and WTI was up to $57.92, the highest since July 2015.

Despite the slip in prices on Friday, both contracts are on track to gain at least 2 per cent this week.

Baker Hughes reported on Friday that the US oil rig count rose by nine to end the week at 738.  This time last year, there were 425 rigs in the US.  In Canada, the oil rig count rose by eight to 108, up from this time last year when there were 89 rigs.

This weeks rise in the US rig count is the most seen since June.

Traders speaking with Reuters say in recent weeks, prices have risen due to OPEC’s efforts to tighten the market by cutting their output as well as rising demand and political tensions in the Middle East.

Many are expecting OPEC to extend its supply cut pact that is curbing participants’ combined output by 1.8 million barrels per day (b/d).

The agreement is due to expire at the end of March next year, but deal kingpins Saudi Arabia and Russia have hinted they will support extending the pact to the end of 2018.

Analysts at Commerzbank acknowledge the move by OPEC and other countries should help stocks decline further, but “the higher price level should lead to a further rise in U.S. shale oil production.”

According to the US Energy Information Administration, US crude production is forecast to rise to an average of 9.2 million b/d in 2017 and a record 10 million b/d in 2018.

Reuters reports Goldman Sachs cautions that rising tensions in the Middle East, especially between Saudi Arabia and Iran, along with rising US production would lead to greater price volatility.

“The political situation in Saudi Arabia remains sufficiently volatile to spike crude values by at least 50 cents at any given time as was the case (Thursday),” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a report.

Another factor supporting oil prices is strong demand in southeast Asia.  Reuters reports that since June, the number of tankers holding oil in storage around Singapore and Malaysia has been reduced by half.

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Posted in: Energy Financial

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