By Jenny W. Hsu
Oil prices in Asia trading were lower early on Monday as drilling activities in the U.S. intensified last week, stoking concerns that the effort by global oil producers to curtail oversupply could be undercut by American shale producers.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at $53.74 a barrel at 0235 GMT, down $0.25 in the Globex electronic session. March Brent crude on London's ICE Futures exchange fell $0.19 to $56.91 a barrel.
Over the weekend, oilfield service company Baker Hughes Inc. reported that the number of rigs drilling for oil in the U.S. rose by four in the week ended Dec 30 to 529. The boom of unconventional oil production in the U.S. has been a major threat to producers in Organization of the Petroleum Exporting Countries, who fear the onslaught of American oil could erode their market share.
As a counterstrategy, the OPEC heavyweights ramped up production over a number of years to cut global prices and drive smaller producers in the U.S. out of the market.
According to the U.S. Energy Information Administration, U.S. production fell to 8.9 million barrels a day last year, a decrease of 5.3%.
The contraction in U.S. output gave OPEC and 11 other non-OPEC players less incentive to keep pumping at top speed and more encouragement to put prices first. Late last year, they agreed to cut production by 1.8 million barrels a day--around 2% of the global output--starting this month.
"We won't see the effectiveness of the production cut plan until mid-February and most people are taking a wait-and-see stance," said Nelson Wang, a China energy analyst at CLSA.
He noted that so far, major producers such as Kuwait and Saudi Arabia have indicated that they have cut their January production in line with the pact, "but that's just talk so far. We'll see what the data really shows in a month."
Despite market skepticism, the global crude market started the year on a positive note, said ANZ Research.
"The next leg up in prices probably won't occur until the traders see evidence that production levels are falling," ANZ said, adding that rising U.S. drilling activity and output is likely to keep prices in check.
Nymex reformulated gasoline blendstock for February--the benchmark gasoline contract--fell 41 points to $1.6299 a gallon, while February diesel traded at $0.0000, 30 points lower.
ICE gasoil for January changed hands at $495.25 a metric ton, up $2.00 from Friday's settlement.
Write to Jenny W. Hsu at firstname.lastname@example.org
(END) Dow Jones Newswires
January 08, 2017 21:59 ET (02:59 GMT)
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