Oil prices slip on higher US output

Oil prices slipped on Tuesday following higher output from US drillers, which offset efforts by OPEC and non-members to cut production and restore balance to the market.

Global benchmark Brent crude was last down 0.1 percent at $55.19 per barrel (bbl), while West Texas Intermediate (WTI) fell 0.5 percent to $52.33/bbl.

Last month, OPEC and non-OPEC oil producers agreed to cut production by a combined 1.8 million barrels per day (mbd), as part of efforts to shore up oil prices and curb the oversupply in the market.

While compliance from the producers has been higher than expected, concerns remain about the impact of the US energy industry and the Trump administration’s policies on oil prices, analysts said.

In a report released on Monday, J.P. Morgan said it expects oil markets will continue to tighten in the coming quarters, as better-than-expected compliance from producers should ensure further drawdowns in oil inventories.

“Risks around this central scenario revolve around the speed of economic growth, and impact of potential US protectionist legislative or regulatory developments,” the lender said.

Moreover, higher prices are stimulating US shale producers to increase activity, with the country’s rig count recovering to its highest level since November 2015, it added.

US drillers added 15 rigs in the week to Jan. 27, taking the total count to 566, data from energy services firm Baker Hughes revealed.

Higher shale production could weigh on oil prices this year, even as inventories continue to decline, New York-based Goldman Sachs noted. The lender forecasts that oil will trade in the $55-60/bbl range in 2017.

Meanwhile, Dubai’s Emirates NBD on Tuesday said the oil market is growing “increasingly anxious” about the likelihood of the US imposing a border tax on imported goods, which would include oil.

This, in turn, could significantly disrupt pricing and potentially push WTI into a premium over Brent.

“It is still too early to say if the tax will indeed come into force fully but diverting seaborne cargoes of oil away from the US could threaten the nascent rebalancing in oil markets,” the bank added.

Write to Jerusha Sequeira at jerusha.s@argaamnews.com