US Drilling, Strong Dollar Brings Down Oil Prices

A strong dollar, a rising rig count in the United States, and record OPEC output pulled down oil prices on Monday.

US West Texas Intermediate (WTI) crude futures were behind 15 cents from their last settlement. They were trading at $50.20 a barrel at 0710 GMT.

According to traders, WTI was pulled down by another increase in US oil drilling activity.

US drillers added four rigs in the week to October 14. This was indicated in a report by oil services provider Baker Hughes showed on Friday. It was the 16th consecutive week that oil drillers had gone without making cuts, signifying more production to come.

International benchmark Brent crude oil futures also dropped, falling 8 cents from their last settlement to $51.87 a barrel.

A seven-month high of the dollar compared to a basket of other leading currencies on Monday, following an expected hike in US interest rates later this year also weighed on crude prices, traders said.

Fresh production records from the Organization of the Petroleum Exporting Countries (OPEC) also weighed on Brent. OPEC pumped out a record 33.6 million barrels of crude oil per day in September.

According to Bernstein Energy in a note to clients on Monday, Elevated inventories of oil, record supply from OPEC year-to-date, and weaker global GDP estimates cause them to lower and flatten their oil price outlook.

“We reduce our Brent forecast to $60 per barrel in 2017 ($70 per barrel before) and $70 per barrel in 2018 ($80 per barrel before),” it added.

Analysts said that traders were wary of driving the market much further down. The reason for this is a plan by OPEC to decrease output. It is part of a scheme to contain a global production overhang. This now stands at about half a million barrels of crude every day in excess of demand.

OPEC plans to meet on November 30 to deliberate on a reduction of around one million barrels a day. The cartel hopes non-OPEC members, specifically Russia, will join a prospective cut.

ANZ bank said that investors are not keen on getting too bearish with Russia conveying interest to join the agreement.

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