LONDON: Oil prices steadied on Tuesday as rising US drilling activity helped undermine efforts by Opec and other producers to cut output to try to prop up the market.
Brent crude oil was up 10 cents a barrel at $55.33 by 1155 GMT. US light crude was down 10 cents a barrel at $52.53.
Both benchmarks have traded within fairly narrow ranges over the last two months, since the Organisation of the Petroleum Exporting Countries agreed to cut output by almost 1.8 barrel per day (bpd) in an attempt to clear a global glut.
After an initial price rise on hopes that markets would rebalance quickly, Brent and US crude futures have both been held back by evidence of higher US oil drilling and forecasts of a rebound in shale production.
Opec’s oil production has fallen by more than 1 million bpd this month, a Reuters survey showed on Tuesday, pointing to a strong start by the exporter group in implementing its first supply cut deal in eight years.
But US shale output is slowly increasing, helping keep a lid on prices. Brent has been close to $55 a barrel and US
crude not far from $52.50 for most of January.
“Opec adherence to production targets has been strong,” said US investment bank Jefferies, but added that US drilling “activity levels are already picking up”.
Following months of increased drilling, US oil production has risen by 6.3 per cent since July last year to almost 9 million bpd, according to data from the US Energy Information Administration.
Goldman Sachs estimates that year-on-year US oil “production will rise by 290,000 bpd in 2017” if a backlog on rigs that are still to become operational is accounted for.
The differing outlook between global oil markets and the US market has focused attention on the spread between Brent and US crude oil futures, also known as West Texas Intermediate or WTI.
Brent’s premium over US crude for March is now between $2.50 and $3.00 a barrel, reflecting a tighter market as Opec’s cuts bite and a more over-supplied US as drilling increases.
The spread was closer to $1 a barrel in November, before Opec agreed to cut production.
“Brent is supported by Opec cuts, (but) WTI falls due to rising US output,” Commerzbank commodities analyst Carsten Fritsch told the Reuters Global Oil Forum.
