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Oil Drops As Signs Of Rising U.S. Output Offset OPEC Optimism

Oil rig

Oil prices were down in early Monday trade after Baker Hughes reported on Friday yet another rise in the U.S. rig count, which, coupled with a stronger dollar, was more than offsetting optimism that OPEC and non-cartel nations would be honoring their deal to cut global supply.

As of 7:04am EST, WTI Crude was down 1.78 percent at US$53.05, while Brent Crude was trading down 1.8 percent at US$56.07.

On Friday, oilfield services provider Baker Hughes reported a 7-rig increase in the first week of 2017 to the number of active oil and gas rigs in the United States, bringing the total number of active oil and gas rigs in the United States to 665, with the oil rig count up to its highest point in a year. Last week marked 11 straight weeks of oil rig increases, and 9 straight weeks of gas rig increases.

“We see the optimism surrounding OPEC and non-OPEC production cuts being counterbalanced by fears of higher U.S. crude production as the higher rig count of last Friday still weighs,” Hans van Cleef, senior energy economist at ABN Amro, commented for Reuters.

On the OPEC side, it looks like Kuwait, Saudi Arabia, Iraq, Venezuela and Angola are so far honoring the deal to curtail supply in a bid to lift oil prices. Related: Oil Price Rebound May Come Too Late For UK Oil Sector

So is apparently Russia, whose oil and gas condensate production averaged 11.1 million bpd in the week to January 8, down from the 11.247 million bpd average output in October, two sources told Reuters.

While OPEC and non-OPEC producers that had pledged cuts are thus far proving to the world and each other that they will be sticking to commitments, Nigeria and Libya are exempt from cuts and are trying to increase output. Iran - which was also given a pass from cutting production, is selling crude oil that it had kept in tankers at sea in a bid to increase market share while fellow OPEC members are cutting.

By Tsvetana Paraskova for Oilprice.com

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