Oil prices creep higher, but overshadowed by U.S. supply 

Crude futures traded slightly higher on Monday, but the market struggled on signs that the U.S. oil production is on a steady uptrend, which could potentially thwart ongoing efforts by multiple oil producers to curb global supply.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in March CLJ7, +0.30%  traded at $53.58 a barrel, up 18 cents, or 0.3%,in the Globex electronic session. April Brent crude LCOJ7, +0.32%   on London’s ICE Futures exchange added 20 cents, or 0.4%, to $56 a barrel.

“This low volatility is the result of the market caught between the exuberance of production cuts from the Organization of the Petroleum Exporting Countries and concerns over rising inventories in the U.S.,” said ANZ Research.

Oil came under pressure over the weekend after data indicated the number of rigs drilling for oil in the U.S. rose by six. At 597, the count is the highest since October 2015.

Goldman Sachs said current rig count implies that the U.S. production would increase on average by 130,000 barrels a day year-on-year in 2017. The U.S. Department of Energy reported the U.S. produced 8.9 million barrels a day last year and is expected to rise to 9.0 million barrels a day this year.

U.S. crude production has risen around 3.2% since late last year, when OPEC and 11 non-cartels agreed to cut their daily production by 1.8 million barrels for six months, underlining the eagerness of the U.S. producers to capture the higher prices.

Analysts say supplies from the U.S. will remain ample given that many U.S. oil companies have been sharpening their technology and focusing on new areas with the high oil potential in order to drill at a lesser cost.

“This will result in production growth gathering pace through 2017,” said Societe Generale in a research report.

Even though current growth rate in U.S. production is not yet fast enough to derail the OPEC-led initiative, the worry is what would happen if the group does not renew the supply cut agreement after June, said Vivek Dhar, commodities strategist at Commonwealth Bank of Australia.

“We are all watching if the rise in U.S. supply will push oil prices back to the high $40 and low $50s range in the second half of this year,” he said.

For this week, market watchers will be monitoring the weekly U.S. crude inventory and production data slated for Thursday instead of Wednesday due to the public holiday on Monday. China will also release its January final oil trade data on Thursday. It is expected to confirm preliminary data which showed China’s crude imports rose 28% on-year to 8 million barrels day.

Nymex reformulated gasoline blendstock for March RBH7, +0.40%  — the benchmark gasoline contract — rose a penny 15 points to $1.5224 a gallon, while March diesel traded at $1.6372, 8 points higher.

ICE gasoil for March changed hands at $493.50 a metric ton, up $3.50 from Friday’s settlement.

Source: MarketWatch

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