Oil prices dropped on Monday, with U.S. primitive easing from two-year highs on prospects of higher output but declines were limited prior to an OPEC meeting that is expected to extend output limitations.
Brent crude oil was down 25 cents at $63.61 a barrel by 1110 GMT.
U.S. crude oil production has increased by 15 percent since mid-2016 to 9.66 million barrels per day (bpd), not much from leading manufacturers Russia and Saudi Arabia. Rising drilling activity means output is very likely to grow further.
The monthly rig count rose for the first time since July, to 747 busy channels, as manufacturers encouraged by rising crude rates.
U.S. crude touched $59.05 a barrel on Friday, its strongest because mid-2015, partially driven by the close of this 590,000 bpd Keystone pipeline linking Canada’s oil sand areas with the United States after a dip, which decreased stocks.
Oil prices have risen sharply in recent years thanks to efforts by the OPEC, Russia and other manufacturers to limit output. The production was cut by 1.8 million bpd in January and OPEC managed to maintain a reduced output signal until March. OPEC meets on Thursday to discuss policy and most analysts expect some kind of deal to expand the reductions.
“A long-running barrage of bullish rhetoric from the petroleum cartel has cemented widely-held beliefs which provide curbs will be extended through to the end of the next year,” explained Stephen Brennock, analyst in London broker PVM Oil Associates.
Analysts at Barclays also expect OPEC to maintain output limitations for the following six or nine weeks, but stated this so broadly predict that there was a risk prices could collapse following the OPEC meeting.
“This week, we expect volatile prices as market participants drop length,” Barclays said in a note to clients. “Prices may fall in the immediate aftermath of the bargain since speculative length ‘sells the information’. Still, principles should keep Brent at an average of $60 a barrel this quarter.”
“Should The outcome of the next OPEC meeting fall short of expectations, the large net-long speculative position on oil futures can unwind, sending Prices volatility and lower higher.”