Oil prices dropped on Friday amid worries that U.S. President Donald Trump’s decision to abandon a global climate pact could spark more crude drilling in the United States, stoking a persistent glut in global supply. Global benchmark Brent crude futures were down 23 cents, or 0.45 percent, at $50.4 a barrel by 0316 GMT. U.S. West Texas Intermediate crude futures dropped 26 cents, or 0.54 percent, to $48.1 per barrel. Commodity markets were absorbing news the United States would withdraw from the landmark 2015 global agreement to fight climate change, a move that fulfilled a major campaign pledge but drew condemnation from U.S. allies. “This could lead to a drilling free for all in the U.S. and also see other signatories waver in their commitments,” said Jeffrey Halley, a senior market analyst at OANDA. “This outcome could increase the supply-side equation from the United States and complicate OPEC’s forward projections. A scenario that would not be favourable to oil prices.”
Surging U.S. production has put a strain on OPEC members’ efforts to curb production to drain a global crude supply overhang and to prop up prices. A week ago, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC members met in Vienna to roll over the output cut deal to reduce 1.8 million barrels per day (bpd) until the end of next March. Faced with lingering glut woes, the oil cartel also discussed last week reducing output by a further 1 to 1.5 percent, and could revisit the proposal should inventories remain high, according to sources.
But oil markets were offered some support by official data that showed crude inventories in the United States, the world’s top oil consumer, fell sharply last week as refining and exports surged to record highs. Crude stockpiles were down to 6.4 million barrels in the week to May 26, beating analyst expectations for a decrease of 2.5 million barrels.
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However, U.S. crude production rose to 9.34 million bpd last week, up nearly 500,000 bpd from a year ago.
“We may or may not see more huge draws. But crude production is slowly but surely going to neutralize the (OPEC-led)production cut,” said Sukrit Vijayakar, director of energy consultancy Trifecta. Rising output from Nigeria and Libya is also undercutting the oil producers’ attempt to limit production. Nigeria and Libya are exempted from crimping output as they seek to restore supplies hurt by internal conflicts. Libya’s oil production has risen to 827,000 bpd after technical problems were resolved at the Sharara field. That was above a three-year peak of 800,000 bpd reached earlier in May.