By Ethan Lou
CALGARY, Alberta (Reuters) – Oil prices were down on Monday due to doubts that large crude producers will reduce production as promised and on expectations that U.S. production would increase again this year.
The Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut production by 1.2 million barrels per day (bpd) to 32.5 million bpd from Jan. 1 in an attempt to clear global oversupply that has depressed prices for more than two years.
Russia and other key exporters outside OPEC have said they will also cut output.
But global oil production remains high and, with inventories near record levels in many areas, investors doubt that OPEC and its allies can trim output enough to push up prices.
Benchmark Brent crude oil (LCOc1) was down 4 cents a barrel at $ 55.41 by 11:14 a.m. EST (1613 GMT) and U.S. West Texas Intermediate crude (CLc1) was down 10 cents at $ 52.27 a barrel.
“Cuts by OPEC and non-OPEC countries have just started and it will take some time for them to filter through,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.
“We do not really expect the oil price to strengthen much more in the first quarter of 2017.”
Rising U.S. oil output is also preventing crude from climbing.
Goldman Sachs said it expects year-on-year U.S. oil production to rise by 235,000 bpd in 2017, taking into account wells that have been drilled and are likely to start producing in the first half of the year.
U.S. oil output is now at 8.95 million bpd, up from less than 8.5 million bpd in June last year and at similar levels to 2014, when overproduction send the market into a tailspin.
A U.S. federal holiday on Monday combined with comments by Saudi Arabia’s Energy Minister Khalid al-Falih added further downward pressure on prices, according to Olivier Jakob of consultancy Petromatrix.
Falih said producers are unlikely to extend their agreement to cut oil output beyond six months, especially if global inventories fall to the five-year average.
“We don’t think it’s necessary given the level of compliance,” Falih said. “My expectations (are) … that the rebalancing that started slowly in 2016 will have its full impact by the first half.”
Russian oil and gas condensate production averaged 11.1 million bpd for Jan. 1-15, two energy industry sources said on Monday, down only 100,000 bpd from December. Russia has committed to a 300,000 bpd cut during the first half of 2017.
(Additional reporting by Christopher Johnson and Julia Payne in London and Henning Gloystein in Singapore; Editing by Louise Heavens and Chizu Nomiyama)
