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Oil falls to one-week low as Opec supply climbs, rig count grows

39895816.1 (39898709) - 18_09_2016 - US-ECONOMY-OIL-INDUSTRY-NORTHDAKOTA.jpg
Oil fell to a one-week low as Opec members added supply and US producers increased drilling, threatening to compound a global surplus.

[NEW YORK] Oil fell to a one-week low as Opec members added supply and US producers increased drilling, threatening to compound a global surplus.

Futures dropped 0.8 per cent in New York. Libyan output expanded to 560,000 barrels a day, according to the National Oil Corp, up from 540,000 last week.

Iran repeated plans to boost production to 4 million barrels a day. Nigeria aims to raise output by 400,000 barrels a day to 2.2 million, Oil Minister Emmanuel Ibe Kachikwu said in New Delhi. Rigs targeting crude in the US rose for a seventh week to the highest since February, Baker Hughes Inc said. 

Oil has fluctuated near US$50 a barrel amid uncertainty about whether the Organization of Petroleum Exporting Countries will implement an agreement to reduce supply. An Opec committee will meet later this month to try and resolve differences over how much individual members should pump.

The details of how supply will be reduced needs to be finalised by the group's next meeting in Vienna on Nov 30.

"There's a growing recognition that Opec will have a hard time getting their act together," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida.

West Texas Intermediate for November delivery slipped 41 US cents to settle at US$49.94 a barrel on the New York Mercantile Exchange. It's the lowest close since Oct 7. Total volume traded was 5.8 per cent below the 100-day average.

Iranian Plans Brent for December fell 43 US cents, or 0.8 per cent, to US$51.52 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a US$1.15 premium to December WTI.

Iran is seeking to pump 4 million barrels a day within two weeks, up from 3.89 million now, Ali Kardor, the managing director of National Iranian Oil Co, said at a conference in Tehran.

The country is targeting an average daily output of 4.28 million barrels of crude and 1 million barrels of condensate within four years, Oil Minister Bijan Namdar Zanganeh said.

"There have been a lot of bearish Opec headlines," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc in New York.

"The market is going to move up and down on Opec headlines until questions are answered at the meeting on Nov 30."

Drilling Activity

American drillers added four rigs to 432 last week, Baker Hughes said Friday. Explorers have added more than 100 rigs since an expansion began in June.  US crude supplies rose to 474 million barrels in the week ended Oct 7, according to the Energy Information Administration. That's the highest for that time of year since the EIA began publishing weekly data in 1982.

The agency is projected to report on Wednesday that stockpiles rose 2.1 million barrels last week, according to the median of analyst responses in a Bloomberg survey.

"The US rig count continues to grow," said Hamza Khan, an analyst at ING Bank NV in Amsterdam.

"The continual increase in the number of rigs does suggest that the upside in crude prices should be capped, with the threat of US oil output returning."

Money managers reduced bets on lower WTI prices by more than half in the past three weeks as Opec agreed to its first deal to cut output in eight years.

That drove net length to the highest since July 2014 in the week ended Oct 11, Commodity Futures Trading Commission data show.

Brent longs also rose, leaving the combined length of the two benchmark contracts at the highest in at least five years.

"There are an awful lot of longs in the market," Mr Yawger said.

"If prices continue to fall we could see them exit rather quickly."

BLOOMBERG