NEW YORK: Crude oil prices dropped on expectations that OPEC production would remain high, stoking worries of oversupply despite declining U.S. rig operations.
The Organization of the Petroleum Exporting Countries (OPEC) pumped at a two-and-a-half year high of 31.22 million barrels of oil per day (bpd) in May, Reuters monthly survey showed.
The 12-member cartel meets in Vienna on Friday but is not expected to alter its production policy, keeping the world oil market amply supplied for the foreseeable future.
Front-month Brent crude was down 75 cents at $64.81 a barrel by 0730 GMT. U.S. light crude was down 70 cents at $59.60 a barrel.
“OPEC continues to produce well above target, and also well above demand for its oil,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
Crude oil prices jumped almost 5 percent on Friday, their biggest rally in over a month, as a larger-than-expected fall in U.S. oil rigs in operation sent markets upwards.
But analysts said U.S. oil production remained on track for year-on-year growth, despite the recent falls in rig activity.
“The drop in the U.S. oil rig count resumed last week with 13 rigs idled … Despite this decline, we believe that should WTI prices remain near $60, U.S. producers will ramp up activity given improved returns with costs down by at least 20 percent and producers increasingly comfortable at the current costs/revenue/funding mix,” Goldman Sachs said in a note to clients.
The bank said it expected U.S. oil production growth of 155,000 bpd in the fourth quarter of this year compared with the same period in 2014.
Morgan Stanley said oil prices could fall in the second half of this year, although a return to this year’s low was unlikely.
“We have growing concerns about crude fundamentals and prices in 2H15 and 2016 after the quick recovery (since January)…The market appears complacent about rising OPEC production and upcoming Iran discussions, both of which could more than offset U.S. declines,” Morgan Stanley said in a note.
Struggling Asian economic growth also weighed on oil.
China’s manufacturing sector showed scant signs of picking up in May as demand stayed stubbornly weak, while exports in South Korea suffered their biggest annual drop in six years.
