Oil prices fell on Monday as rising U.S. drilling activity outweighed talks that an OPEC-led production cut initially due to end in mid-2017 may be extended.
Benchmark Brent crude futures eased 22 cents, or 0.4 percent, from their last close to $50.58 per barrel by 0527 GMT.
In the United States, West Texas Intermediate (WTI) crude futures were down 32 cents, or 0.7 percent, at $47.65 a barrel.
Traders said that prices received some support from talks over the weekend between the Organization of the Petroleum Exporting Countries (OPEC) and other producers aimed at extending a production cut beyond the middle of the year in order to prop up the market.
“OPEC and non-OPEC decided to get ahead of the game this weekend, announcing they are reviewing whether the output curb deal should be extended,” said Jeffrey Halley of futures brokerage OANDA in Singapore, adding that this had given crude some support.
But any OPEC-led cuts have been offset by rising drilling activity and oil production in the United States, which traders said contributed to financial traders reducing their long positions in crude futures to the lowest level since early December.
“The U.S. oil rig count continued its surge … Since its trough on May 27, 2016, producers have added 336 oil rigs (+106 percent) in the U.S.,” Goldman Sachs said in a note.
Since mid-2016, U.S. oil production has risen by 700,000 bpd, or 8.3 percent, to 9.13 million bpd, government data shows.
The U.S. bank said that should the rig count stay at current levels and the impact of previously closed rigs returning to production was considered, then U.S. oil production would rise by 235,000 bpd between the fourth quarter of 2016 and the first half of 2017.
Because of soaring U.S. output and the cuts by OPEC, the discount of U.S. WTI crude prices to international Brent crude has grown to over $2.90 per barrel, heading for its widest close since late 2015, encouraging more sales of U.S. oil to Asia to replace cuts in Middle East production.
Despite the ongoing fuel supply overhang and rising U.S. shale output, Goldman Sachs said that global oil markets were slowly rebalancing, largely due to strong demand growth.
“While the shale production rebound has surprised to the upside, it will be offset in our view by the high compliance to the production cuts through and most importantly, strong demand levels,” the bank said.
“We believe that the rebalancing of the oil market is in fact making progress,” it said, adding that an OPEC-led extension of the production cut was therefore not needed.