Oil prices fall with U.S. production expected to rise

Oil prices fell to their lowest level in a week on Wednesday on expectations U.S. producers would boost output, while OPEC signalled a drop in the global oil supply surplus this year as the producer group's output fell from a record high.

Oil prices fell in trading on Wednesday as analysts wonder if the OPEC supply deal is being honored by participants and how much increased US production could impact prices. Anadarko photo by Mike Goldwater.

Oil prices down to lowest level in a week

By Scott DiSavino

NEW YORK, Jan 18 (Reuters) – Oil prices fell to the lowest in a week on Wednesday on a strong dollar and expectations that U.S. producers would boost output, while OPEC signalled a drop in the global oil supply surplus this year as the group’s output fell from a record high.

U.S. shale production is set to snap a three-month decline in February, the U.S. Energy Information Administration said on Tuesday, as energy firms boost drilling activity.

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Brent crude was down $1.29 or 2.33 per cent at $54.18 a barrel by 2:06 p.m. EST (1906 GMT), while U.S. crude was down by $1.18 or 2.25 per cent at $51.3 a barrel. Both contracts had earlier in the session hit their lowest levels since Jan. 11.

The dollar strengthened against a basket of currencies, rising about 0.6 per cent and pressuring greenback-denominated oil.

EIA projected oil production in the biggest U.S. shale fields would rise by 40,750 barrels per day (b/d) to 4.748 million b/d in February.

“The petroleum markets have turned lower again in Wednesday trade amid talk that higher oilprices will translate into additional U.S. shale-oil production as a counter-balance to OPEC efforts to trim supply and reduce excess inventories,” Tim Evans, Citi Futures’ energy futures specialist, said in a note.

The Organization of the Petroleum Exporting Countries (OPEC) signalled a falling oil supply surplus in 2017 on Wednesday as the exporter group’s output slips from a record high ahead of a deal to cut supply and outside producers show positive initial signs of complying with the accord.

However, OPEC, in a monthly report, also pointed to the possibly of a rebound in U.S. output, as higher oil prices following supply cuts by other producers support increased shale drilling.

“OPEC’s regular dose of bullish rhetoric intending to prop up values has begun to wear thin,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

OPEC excluding Indonesia, pumped 33.085 million b/d last month, according to figures OPEC collects from secondary sources, down 221,000 b/d from November, OPEC said in a monthly report on Wednesday. The figures showed the biggest reduction came from Saudi Arabia.

OPEC, Russia and other non-OPEC producers in November and December pledged to cut oil output by nearly 1.8 million b/d, initially for six months, to bring supplies back in line with consumption.

Analysts forecast that U.S. crude stocks decreased by about 300,000 barrels in the week to Jan. 13. The American Petroleum Institute (API) will release its inventory report on Wednesday at 4:30 p.m. EST. Weekly inventory data from the EIA will be released on Thursday at 11 a.m. EST (1600 GMT), both delayed a day because of the federal holiday on Monday.

(Additional reporting by Devika Krishna Kumar in New York, Ahmad Ghaddar in London and Naveen Thukral in Singapore. Editing by Chizu Nomiyama and Lisa Shumaker)