Oil prices fall two percent after end-of-week rally

Ivan Schwartz
August 22, 2017

Oil prices fell almost 2% on Monday, pulling back from last week's rally built on signs the global market is starting to rebalance from chronic oversupply. Brent crude futures LCOc1 dropped 2 percent, or $1.07, at $51.65 a barrel as of 12:01 p.m. EDT after hiking more than 3 percent on Friday. The contract had also risen 3% in the previous session.

West Texas Intermediate for September delivery, which expires Tuesday, fell $US1.14 to settle at $US47.37 a barrel on the New York Mercantile Exchange.

"Week after week we are seeing a much bigger-than-expected fall in inventories", he added.

The Joint Technical Committee of OPEC and non-OPEC nations meeting in Vienna on Monday is said to see July compliance to the production-cuts deal at 94 per cent, two people with knowledge of the meeting said.

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United States hedge funds and money managers have already started reducing bets on rising prices, with Commodity Futures Trading Commission data showing on Friday that investors had cut bullish bets on U.S. crude for a second straight week.

Hedge funds had boosted Brent net-long positions to the highest since mid April in the week ended August 15, weekly ICE Futures Europe data on futures and options show. In May this year, OPEC producers and 11 participating non-OPEC countries including Russian Federation formally ratified the agreement first drafted last November to cut supplies by 1.76 million barrels per day for an extension. The increased production in the US and an increase in the numbers of operating rigs remain as one of the biggest of concerns for the oil bulls.

Drillers cut five rigs in the week to Aug 18, decreasing the count to 763. The increasing numbers of operating rigs, as well as increasing production, have been raising concerns that the USA shale oil producers which were able to cut their production cost dramatically over the past years are now a low-priced global competitor and would continue to undermine the OPEC agreement to cut supplies. Libya is working to reopen a pipeline linking the Sharara oil field to the Zawiya export terminal after loadings were halted.

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