Oil prices were steady on Jan. 30, but news of another increase in U.S. drilling activity spread concern over rising output just as many of the world's oil producers are trying to comply with a deal to pump less in an attempt to prop up prices. The number of active U.S. oil rigs rose to the highest since November 2015 last week, according to Baker Hughes Inc. (NYSE: BHI) data, showing drillers are taking advantage of oil prices above $50 a barrel (bbl). Global benchmark Brent crude oil prices were down 5 cents at $55.47/bbl at 6:26 a.m. CT (12:26 GMT), while West Texas Intermediate crude futures traded up 9 cents at $53.26.
"Brent's performance is flat at the moment but we have three factors that have been weighing on prices: the stronger U.S. dollar, the steady increase in U.S. rig counts and the [latest OPEC compliance data]," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.
OPEC and other producers including Russia agreed to cut output by almost 1.8 MMbb/d in the first half of 2017 to relieve a two-year supply overhang. First indications of compliance to that deal show that members have cut production by 900,000 bbl/d in January, according to Petro-Logistics, a company that tracks OPEC supply.
Tamas Varga, analyst at PVM Oil Associates in London, said the news was "not very encouraging" because it implied that only 75% of the OPEC production cut target was being met. Oil prices have remained above $50/bbl since producers agreed the deal in December, incentivising drillers in low-cost U.S. shale producing regions to ramp up activity.
"In our view the strong rise in U.S. shale oil rigs is a good thing because it will be needed over the next three years as non-OPEC, non-U.S. crude production continues to be hurt by the deep capex cuts both past and present in that segment," said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo. He estimates the U.S. rig count will continue rising at a rate of seven rigs per week over the first half of the year. Iran's oil minister Bijan Zanganeh said Jan. 30 he expected oil prices to remain at around $55/bbl this yes, according to Mehr news agency.
