Oil prices edged lower on Monday, weighed down by an expansion in US drilling that has helped to maintain high global supplies despite an OPEC-led initiative to tighten the market by cutting production. Signs of faltering demand have also prompted weakening sentiment, dropping prices to levels comparable to when the output cuts were first announced late last year. Brent crude futures were down 16 cents at $47.21 per barrel at 0841 GMT. US West Texas Intermediate (WTI) crude futures were down 19 cents at $44.55 per barrel.
Prices for both benchmarks are down around 14 percent since late May, when producers led by the Organization of the Petroleum Exporting Countries extended a pledge to cut output by 1.8 million barrels per day (bpd) for an extra nine months. Analysts said a steady rise in U.S. production, along with output increases in cut-exempt Libya and Nigeria, were undermining the OPEC-led effort.
“Anyone who is looking for the bottom of the current price fall must keep his or her eyes on the supply-side equation and only get optimistic if the factors that have been driving oil prices lower since the end of May change,” PVM analyst Tamas Varga said. Data on Friday showed a record 22nd consecutive week of increases in the number of U.S. oil rigs, bringing the count to 747, the most since April 2015.
Investment bank Goldman Sachs said if the rig count holds, U.S. oil production would increase by 770,000 bpd between the fourth quarter of last year and the same quarter this year in the Permian, Eagle Ford, Bakken and Niobrara shale oilfields. Supplies from OPEC also jumped in May, driven by recovering output from Libya and Nigeria, which were exempt from cuts due to unrest that had hindered their output.
There are also indicators that demand growth in Asia, the world’s biggest oil-consuming region, is stalling. Japan’s customs-cleared crude imports fell 13.5 percent in May from a year earlier, the Finance Ministry said. India took in 4.2 percent less crude in May than it did a year before. In China, oil demand growth has been slowing for some time, albeit from record levels.
Saudi Energy Minister Khalid al-Falih said the oil market needed time to rebalance, pointing to a draw of around 50 million barrels from floating storage and a drop in industrial nations’ onshore storage compared to July last year.