Oil Lower in Monday Trade

NEW YORK (DTN) -- New York Mercantile Exchange oil futures fell at the start of regular trade Monday morning as concern over rising U.S. oil production overshadowed falling global supply and prompted profit-taking after a three-day rally through Friday.

The selloff started overnight spurred by another weekly increase in active U.S. oil rigs reported Friday afternoon, with losses pared in pre-market trade when the Organization of the Petroleum Exporting Countries issued a report raising its global demand outlook. The modest support was fleeting.

Baker Hughes, Inc. Friday afternoon reported an eight-rig increase in the number of active oil rigs in the United States to a total of 591 for the week-ended Friday (2/10), with the oil industry deploying 66 rigs so far this year. The Energy Information Administration showed on Feb. 8 that domestic crude production grew by 63,000 bpd during the week-ended Feb. 3 to a 10-month high of 8.978 million bpd.

OPEC's Monthly Oil Market Report revised the group's 2017 global oil demand forecast up 35,000 bpd from month prior for annual growth of 1.19 million bpd and consumption at 95.81 million bpd. OPEC also revised up by 120,000 bpd its estimate for non-OPEC supply growth in 2017 for annual growth of 240,000 bpd due to a pick-up in oil drilling activity and investment in the United States.

Citing secondary sources, the MOMR showed OPEC crude production in January decreased by 890,000 bpd month-over-month to a 32.14 million bpd average. That 890,000 bpd represents 74% of the 1.2 million bpd in production cuts the producer group agreed to on Nov. 30, 2016.

This is the first report from OPEC on member production totals since production cuts by the cartel took effect on Jan. 1, and the data was disappointing. The lower compliance rate contrasted with recent private surveys that showed OPEC compliance of more than 80% while the International Energy Agency on Friday estimated a 90% compliance rate.

Nonetheless, analysts have said Saudi Arabia is determined to ensure the production cuts, with their goal in expediting a move to a rebalanced global market this year, are successful. The Saudis are also cutting deeper than their 486,000 bpd quota target, last month telling customers to expect cuts in February of as much as 7% compared with their 4% pledge.

The Saudis self-reported a January production cut of 717,600 bpd, according to MOMR, although secondary sources show a 496,200 bpd reduction.

Meanwhile, Kuwaiti oil minister Essam al-Marzouq, who in mid-January chaired OPEC committee monitoring production cuts, said this morning that non-compliance by the 11 non-OPEC producers that on Dec. 10, 2016 joined OPEC in agreeing to production cuts is 50%. The non-OPEC producers agreed to a 558,000 bpd cut, with Russia accounting for 300,000 bpd of the reduction.

In early trade, NYMEX March West Texas Intermediate futures were 69cts lower at $53.17 bbl and ICE April Brent crude oil futures lost 81cts to $55.89 bbl. NYMEX March RBOB futures declined 3.46cts to $1.555 gallon and NYMEX March ULSD futures tumbled 3.36cts to $1.6323 gallon.

Looking ahead this week, the market awaits a raft of U.S. economic data including readings on inflation and industrial production, in addition to two Congressional testimonies by Federal Reserve Chair Janet Yellen.

The U.S. dollar rallied to a three-week high this morning, boosted by expectations for strong U.S. economic growth which also boosts demand for oil. However, domestic oil prices have an inverse relationship with the dollar, with oil traded internationally in the greenback.

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