Oil Prices Fall On Concerns Of Rising US Production

Limited downside risks for oil & gas stocks: Analysts

Further production cuts by the Organization of Petroleum Exporting Countries (OPEC) and other major suppliers in the coming year could push the oil price as high as $70 a barrel, Cantor Fitzgerald Europe's Sam Wahab has said.

Brent crude futures were down $1.08, or 1.9%, at $56.02 a barrel (bbl) at 6:27 a.m. CT (12:27 GMT), after touching a intra-day low of $55.85.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG7, +0.67% traded flat at $51.96 a barrel in the Globex electronic session. Oil output, according to EIA weekly surveys, is up roughly 300,000 bpd from summer lows, with more supply expected to come online in the months ahead as drilling picks up pace.

"There's concern about the rising USA rig count and what that will mean for production in the next few months", Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass., said by phone.

The U.S. Energy Information Administration revised its forecast for 2017 U.S. crude output, expecting growth of 110,000 barrels per day compared with last month's forecast of a 80,000 bpd year-over-year decline.

Iran's oil exports, which reached close to 3 million barrels per day in 2011, fell to a little more than 1 million bpd after tougher sanctions were imposed in 2012 targeting its nuclear program. Moreover, Nigeria - which, like Libya, is exempt from the OPEC deal - is intent on restoring production.

The deal is supposed to cut global production by more than 1%, but many have noted these countries have frequently cheated output quotas in past deals.

Another area of concern is increasing number of oil rigs in the U.S for a tenth week in a row, the number jumped up to 529, the highest figure since December 2015, according to Baker Hughes.

"The continuous rise in US rig counts is bound to have a positive impact on domestic oil production", Tamas Varga, an analyst at broker PVM, said in a note published early Tuesday.

The production cut is a third of what Russian Federation has pledged.

The turnaround from bearish to bullish has been the largest in history and helped push benchmark Brent prices up by one-third or almost $15 per barrel ("Saudi Arabia engineers big shift in oil market sentiment", Reuters, Dec. 14).

Oil has rallied 23 percent since mid-November amid speculations that the supply cuts would boost prices.

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