NEW YORK (REUTERS) - Oil prices fell more than 2 per cent on Thursday (March 2) after Russian crude production remained unchanged in February, showing weak compliance with a global deal to curb supply to tighten the oversupplied market.
Russia's February oil output was unchanged from January at 11.11 million barrels per day (bpd), energy ministry data showed, with cuts remaining at 100,000 bpd or just a third of the levels pledged by Moscow under the agreement with the Organization of the Petroleum Exporting Countries.
Brent futures ended the session US$1.28, or 2.3 per cent, lower at US$55.08 per barrel and U.S. crude settled down US$1.22, or 2.3 per cent, at US$52.61.
A stronger US dollar also weighed on greenback denominated oil, making it more expensive for buyers in other currencies. The dollar rose to seven week highs against a basket of currencies after hawkish comments by a Federal Reserve official encouraged investors to expect a near-term interest rate hike.
The oil markets extended losses from Wednesday when government data showed crude inventories in the United States, the world's biggest oil consumer, rose for an eighth straight week to a record 520.2 million barrels last week.
Oil prices, however, have been unusually stable since producers agreed in November to reduce the oversupply that has weighed on prices for more than two years, with both Brent and US crude locked in $5 ranges.
"I think oil is paying attention to risk markets at this point and not necessarily trading on its own news flow," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. "The CFTC data will tell you that there's very high conviction that Opec is complying ... the question is what's the offset from US producers and how much compliance you get from non-Opec producers."
Hedge fund and money managers' bullish wagers on US crude oil has soared to a record in the week to Feb 21, data from the US Commodity Futures Trading Commission (CFTC) showed last week.
Separately from its deal with Russia, Opec has boosted already strong compliance with the group's six-month deal that began in January to around 94 per cent, after it cut output for a second month in February, a Reuters survey found.
"While constructive, we continue to view Saudi Arabia's willingness to sacrifice market share beyond its commitment to Opec as more of a temporary sprint than a more sustainable effort," Tim Evans, Citi Futures' energy futures specialist, said in a note.
Russian Energy Minister Alexander Novak said it was too early to say if the deal to reduce oil production would be extended beyond the end of June. Opec, Russia and others are due to agree on output policy in the next three months.
"It is premature to talk of what we will discuss in April-May," Novak told Reuters in an interview.
Novak forecast Brent crude would average between US$55 and US$60 a barrel this year, with Russia's flagship Urals crude oil blend probably trading US$2-US$3 a barrel below that.