Oil Closes Lower Monday

NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures settled lower Monday afternoon on concerns rising U.S. oil production would keep the Organization of the Petroleum Exporting Countries and their non-OPEC allies from achieving their goal of draining the global market of excess supply so as to support prices.

Today was the second straight session the futures market settled lower following the release last Friday (1/27) of data showing a big rise in the U.S. oil rig count. Oil services firm Baker Hughes reported the number of active oil rigs increased by 15 last week to 566, the most in more than a year, with 41 oil rigs added so far in January.

That was the second week of big increases in the rig count following the prior week's 29 jump, the most in nearly four years. The latest Baker Hughes rig count report highlighted rising domestic oil output and offset signs of tightening global supply.

U.S. crude production increased 191,000 bpd in the first three weeks of 2017 and at 8.961 million bpd production is at a nearly 10-month high, according to the Energy Information Administration.

OPEC and their 11 non-OPEC partners are to reduce output by a combined 1.758 million bpd in the first six months of 2017 to fulfil the terms of agreements reached late last year. They said last week that they were able to cut 1.5 million bpd during the first three weeks of the year, which is equivalent to an 85% compliance rate. That's better than the previous compliance rate of 57% in 2008, the last time OPEC agreed to cut its output.

Some OPEC watchers agree the compliance rate is strong but not as rosy as OPEC wants the market to believe. Petro-Logistics, which tracks OPEC supply, said OPEC oil output is set to fall by 900,000 bpd in January, which is represents a 75% compliance rate.

Analysts said today's losses were also driven by a stronger dollar and a stock market selloff triggered by an executive order signed on Friday by President Donald Trump banning citizens from seven Muslim-majority countries from entering the United States.

"The rig count will lead to more than anticipated U.S. crude production growth, but at the same time, we have a stronger dollar, so those are what the market is focused on," said Andy Lipow, president of Lipow Oil Associates in Houston.

"Oil [futures] were weak as the stock market sold off on worries about the uncertainty on the travel ban and the timing of [President] Trump's tax cuts…[but] look for turnaround on Tuesday," said Phil Flynn, a senior analyst at Price Futures Group in Chicago.

NYMEX March West Texas Intermediate futures settled 54cts lower at $52.63 bbl. The ICE March Brent crude futures contract settled 29cts lower at $55.23 bbl ahead of its expiration Tuesday, with the April contract settling down 38cts at $55.32 bbl. NYMEX February ULSD futures settle 1.22cts lower at $1.6067 gallon and February RBOB futures were 2.16cts lower at $1.5055 gallon, with both products contracts also expiring Tuesday.

Looking ahead, the oil market will focus on weekly oil supply reports for the week-ended Jan. 27 due out Tuesday afternoon from the American Petroleum Institute, while EIA will release weekly data on Wednesday. One analyst expects to see crude stock build of 3.0 million bbl for the week while another expects to see a crude stock draw of 3.0 million bbl.

George Orwel can be reached at george.orwel@dtn.com