By Sarah McFarlane
Oil prices extended losses on Monday to trade near a four-month low after increased drilling activity in the U.S. indicated a strong rise in production was coming.
Brent crude, the global oil benchmark, fell 1.1% to $51.17 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 1.4% at $48.08 a barrel.
"Prices are struggling at these levels. Nobody was expecting U.S. shale-oil production to pick up so much and so quickly," said Gnanasekar Thiagarajan, director of Commtrendz Risk Management.
On Friday, Baker Hughes Inc. data showed the number of active U.S. rigs drilling for oil had increased by 14 to reach 631 rigs, rising for the ninth straight week. The rig count is at its highest level since September.
"With this kind of growth pace that we're seeing, the price has to soften in the second half of the year in order to moderate the additions of rigs," said Bjarne Schieldrop chief commodities analyst at SEB Markets.
Last week the U.S. Energy Information Administration revised its production forecast upward to 9.2 million barrels a day in 2017 and 9.7 million barrels in 2018. Mr. Schieldrop said SEB Markets forecasts U.S. output will be significantly higher at 10.7 million barrels a day in 2018.
The rising U.S. output is offsetting production cuts agreed upon by the Organization of the Petroleum Exporting Countries and other major producers including Russia.
Oil prices have fallen by around 10% since the start of the month as doubts have grown over whether the cuts were achieving their goal of drainingglobal inventories. However, talk of the deal being extended beyond its initial six-month period, which expires in June, helped to temper the negative sentiment.
Investors will likely recalibrate their expectations this week, with the market still awash with excess crude-oil supplies, Mr. Thiagarajan said. That is why a weaker dollar, which is typically supportive of crude-oil prices, isn't helping investor sentiment, he said.
Already a large number of bullish bets have been unwound during the recent downturn in price.
"The week to 14 March saw a downright exodus of financial investors, who slashed their net long positions," said Commerzbank.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 0.7% to $1.59 a gallon. ICE gasoil changed hands at $453.50 a metric ton, down $3.25 from the previous settlement.
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(END) Dow Jones Newswires
March 20, 2017 07:35 ET (11:35 GMT)
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