Oil prices declined on Monday by about 2 percent, the most since mid-January, pressured by a stronger dollar and signs of rising US crude output. Investors were meanwhile underwhelmed by an OPEC report showing high compliance with last year's production-cut deal. Brent futures lost $1.11, or 2 percent, at $55.59 a barrel, while US West Texas Intermediate crude fell 93 cents, or 1.7 percent, to $52.93 per barrel.
Those were the biggest percentage declines for both contracts since January 18. "Crude fell due to the stronger dollar earlier in the session, an increase in the US rig count and an increase in US productivity in the shale basins," said James Williams, president of energy consultant WTRG Economics in Arkansas. Hopes of US tax cuts to stoke corporate profits and investments lifted the dollar to a near three-week high against a basket of currencies earlier Monday, pressuring greenback-denominated oil.
The Organisation of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, agreed late last year to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017 in a deal aimed at supporting prices and lessening a glut. The group's first monthly data since the deal showed that top producer Saudi Arabia made a large cut in its crude output in January, helping boost compliance with the group's supply-reduction deal to a record high of 93 percent.
Saudi Arabia told OPEC that it made an even bigger cut than estimated by the secondary sources, reducing January output by more than 700,000 bpd to 9.748 million bpd - lower than called for under the OPEC deal. But high compliance had been expected and the report failed to push oil prices into positive territory. "The good compliance rate of OPEC seems to be priced in. The US rig count from Friday is weighing, the numbers support the shale comeback story," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.
US shale oil production for March is expected to rise by the most in five months, government data showed on Monday, as energy companies boost drilling on the back of oil prices that are hovering over $50 a barrel. Over the past month, US oil drillers have added the most drilling rigs since 2012, bringing the total to 591 rigs, the highest since October 2015, oil services company Baker Hughes said in a weekly report.
Speculators cut net long positions on Brent last week by 10,000 contracts, weekly ICE data showed, highlighting investor concerns about rising US production.Analysts at ABN Amro are sceptical about OPEC production cuts delivering higher oil prices, and reduced Brent forecasts for the first half of this year to $50 from $55 a barrel.