WTI drops 1.5% on Monday on heightened expectations of rising US output
- Brent drops more than 2% on Monday, edges lower toward $62.
- Rising oil rig count from the U.S. point to increasing production.
- OPEC output is set to decrease to a 6-month low.
The positive impact of OPEC's decision to extend the oil output cut until the end of 2018 on crude oil prices didn't last long. After failing to refresh its two-year high above the $59 handle, the barrel of West Texas Intermediate came under pressure on Monday and was last seen trading at $57.45, down nearly $1, or 1.6% on the day.
American producers are looking to take advantage of higher prices
Friday's data released by Baker Hughes Inc. showed that the number of active oil rigs increased by 2 on a weekly basis last week, bringing the total number to its highest level in more than two months at 749. Investors are worried that American shale producers are going to make it difficult for the oil market to rebalance as they keep ramping up the output as soon as prices start to rise.
In the meantime, Reuters published the findings of a recent survey on Monday, revealing that OPEC's compliance with the output cuts advanced to 112% in November from 92% in October. The details of the report showed that Angola and Iraq recorded the biggest drops. Commenting on the report, "based on the recent past we can start the New Year with relative optimism as far as conformity is concerned. The outcome of last Thursday's meeting looks constructive," Tamas Varga of oil broker PVM told Reuters.
Later this week, investors will be closely watching the weekly inventory reports from the United States. In case the data shows a higher than expected buildup in stock levels, crude oil could continue to suffer losses. In the meantime, the barrel of Brent is down 2.15% at $62.35 at the moment.
Technical levels to consider
The initial support for the barrel of WTI could be seen at $56.75 (Nov. 29 low) ahead of $56 (psychological level) and $54.80 (Nov. 14 low). On the upside, resistances align at $58.10 (Nov. 28 high), $59.05 (Nov. 24 high) and $60 (psychological level).