Oil fell two percent on Monday as signs of growing U.S. production outweighed optimism that many other producers, including Russia, were sticking to a deal to cut supplies in a bid to bolster the market.
Brent crude futures were down $1.08, or 1.9 percent, at $56.02 a barrel at 1227 GMT (7:27 a.m. ET), after touching a intra-day low of $55.85. U.S. crude futures were trading at $52.99 per barrel, down $1, or 1.9 percent, compared with a session low of $52.85.
“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,” said Hans van Cleef, senior energy economist at ABN Amro.
A stronger U.S. dollar also weighed as the currency surged on expectations of faster U.S. interest rate hikes this year, making it more expensive to hold dollar-denominated commodities.
Last week, U.S. energy companies added oil rigs for a 10th week in a row to 529, Baker Hughes data showed, extending a recovery in activity into an eighth month.
Analysts at Barclays said they expected the U.S. rig count to rise to 850-875 by the end of the year, with spending on exploration and production set to increase 27 percent in North America.
This raised concerns that U.S. production is increasing and undermining efforts by the Organization of the Petroleum Exporting Countries (OPEC) and others to cut output.
In Iraq, OPEC’s second-biggest producer, a record 3.51 million barrels per day (bpd) were exported from its port in Basra in December, officials said, although they added that the country would comply with its commitment to lower output by an average of 210,000 bpd from January.
Sources also told Reuters on Monday that Iraq’s State Oil Marketing Company (SOMO) had given three buyers in Asia and Europe full supply allocations for February.
Traders also eyed news from OPEC member Kuwait, where bad weather forced the closure of oil exporting ports, state news agency Kuna said.
On the other hand, Russia, one of the world’s largest crude producers, appeared to be sticking to the agreement to cut.
Russian energy market sources told Reuters the country’s output had fallen by 100,000 bpd in the first week of the month.
Analysts at JBC Energy were optimistic about a tighter oil market in 2017.
“Concerns regarding the sincerity, depth and duration of announced production cuts notwithstanding, most analysts, including us, see tighter-than-previously-envisaged balances for 2017,” they said.