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Oil prices drop 3% on rising global supplies

Oil prices settled nearly 3 per cent lower on Friday as rising US production as Opec exports hit a 2017 high cast doubt over efforts by producers to curb global oversupply.

[NEW YORK] Oil prices settled nearly 3 per cent lower on Friday after data showed rising US production just as Opec exports hit a 2017 high, casting doubt over efforts by producers to curb global oversupply.

Brent crude settled down US$1.40, or 2.9 per cent, at US$46.71 a barrel, after falling to US$46.28, its lowest in more than a week.

US West Texas Intermediate (WTI) crude futures finished US$1.29, or 2.8 per cent, lower at US$44.23 a barrel, after trading as low as US$43.78.

Both benchmarks posted a sixth weekly decline in the past seven weeks with WTI down 3.9 per cent on the week and Brent off 2.5 per cent.

"The stream of relentless supply continues," said Matt Smith, director of commodity research at Clipperdata.

He said Opec exports were 2 million barrels per day (bpd)higher in June than in 2016, despite of an extension of a 1.8 million bpd production cut deal led by the Organization of the Petroleum Exporting Countries.

"We've seen exports last month from Opec much stronger than they were in April and May, seemingly indifferent to the Opec production cut deal," Mr Smith said.

Reuters oil data showed Opec production is now at the highest level this year.

Russia, which is cooperating with Opec in a deal to stem production, said it was ready to consider revising parameters of the deal if needed.

A group of oil-producing countries monitoring the deal will meet on July 24 in Russia, when they could recommend adjusting the pact.

Meanwhile, US producers seemed undeterred by lower prices with drillers adding seven oil rigs this week, according to energy services company Baker Hughes, bringing the total rig count up to 763, the most since April 2015.

On Thursday, US government data showed that US oil production rose one per cent to 9.34 million bpd last week after a drop the previous week due to maintenance work and storm shutdowns.

"It takes somewhat lower prices to slow down US production," said Rob Haworth, senior investment strategist at US Bank Wealth Management.

Amidst rising US production, the market largely ignored a 6.3 million-barrel slump in US crude inventories last week to 502.9 million barrels, the lowest since January.

US bank Morgan Stanley said it expected WTI prices to remain below US$50 until mid-2018, adding that "if output cuts from the Opec are not enough, US shale production will need to slow down for a chance of a balanced market in 2018."

Money managers raised their net long US crude futures and options positions in the week to July 3, the US Commodity Futures Trading Commission (CFTC) said. The increase came after hedge funds and other money managers cut US crude net longs to a nine-month low in the previous week.