Oil prices fell yesterday, with already-bloated markets pressured by rising US drilling activity and steady supplies from the Organisation of Petroleum Exporting Countries (Opec) despite touted production cuts.
As of 8am GMT (4 pm Singapore time), prices for benchmark Brent crude futures were down 34 cents, or 0.66 per cent, at US$51.42 (S$72) per barrel. US West Texas Intermediate (WTI) crude futures slipped 48 cents, or 0.98 per cent, to US$48.30 a barrel.
Traders said that prices came under pressure from rising US drilling and ongoing high supplies by the Opec despite its pledge to cut output by almost 1.8 million barrels per day (bpd) together with some other producers like Russia.
"There is good, strong momentum to the downside," futures brokerage CMC Markets said in a note.
US drillers added 14 oil rigs in the week to last Friday, bringing the total up to 631, the most since September 2015, energy services firm Baker Hughes said last Friday. This extends a recovery that is expected to boost shale production next month by the most in six months.
Mr Sukrit Vijayakar of energy consultancy Trifecta said the rising drilling activity was "reinforcing the expectation of higher US production offsetting (Opec's) supply cuts".
US oil output has risen to over 9.1 million bpd from below 8.5 million bpd in June last year.
Reacting to the ongoing glut in markets, financial oil traders cut their net-long US crude futures and options positions in the week to last Tuesday, the third consecutive reduction, the US Commodity Futures Trading Commission (CFTC) said.
"This unwinding of position is both a cause and reflection of the big fall in crude oil prices when the cracks in the Opec/non-Opec deal emerged and when it seems like it became evident shale oil is back and the new swing player," said chief market strategist Greg McKenna from brokerage AxiTrader.
Defying rising sentiment that oil markets remain oversupplied, some analysts say markets will tighten soon, arguing that the Opec-led cuts will start to bite only from next month, just as demand picks up as refineries return from current maintenance outages.
"The cuts in Opec production from the start of 2017 should start to show up between mid-March (now) and mid-April. Over the coming weeks we expect a sharp reduction in imports and increase in refining runs which should lead to impressive crude inventory draws," analysts at AB Bernstein said yesterday in a note to clients.
"The combination of falling imports and stronger crude runs should lead to substantial inventory cuts over the coming months," they said.