Oil prices were firm on Monday, supported by strong demand and political uncertainty in Syria, although another rise in U.S. drilling activity kept a lid on gains. Brent crude futures, the international benchmark for oil, were at $55.28 per barrel at 0226 GMT, up 4 cents from their last close. U.S. West Texas Intermediate (WTI) crude futures were up 10 cents at $52.34 a barrel. Traders said prices were being supported by strong demand, and also political uncertainty following the U.S. missile air strikes on Syria late last week. ANZ bank said on Monday that strong oil demand and “an unsettled global backdrop (is) leaving the market very finely balanced”.
However, another increase in U.S. oil drilling, which has run up for 12 straight weeks to 672 rigs – the highest level since August 2015, kept markets from breaking last week’s one-month highs of over $56 per barrel. U.S. bank Goldman Sachs said following the rig data release that year-on-year U.S. oil production “would rise by 215,000 barrels per day in 2017” once a backlog of production waiting to be brought back online was taken into account.
The soaring output in the United States contrasts with a supply cut led by the Organization of the Petroleum Exporting Countries (OPEC), which hopes to prop up prices by reducing supplies in the first half of 2017 – and maybe even beyond. This allows U.S. producers to sell rising amounts of cheap U.S. crude into the rest of the world, where prices are higher. “Reduced OPEC volumes and stronger U.S. output will result in a deeper discount for U.S. crude and support greater exports from the U.S. to Asia over the coming months,” BMI Research said, although it added that in terms of overall volumes, “the U.S. will remain a small player in Asia as OPEC actively protects its market share.”
Beyond the United States, other producers are also benefiting from OPEC’s supply cuts and artificially tighter market. Brazil’s oil exports have soared 65 percent since February 2016, to record highs of more than 1.46 million bpd, according to government data obtained by Reuters. Consultancy Wood Mackenzie estimates 2017 exports will hit nearly 1 million bpd, up from 798,000 bpd last year.