Oil prices dipped on Monday, weighed down by a continuing expansion in U.S. drilling that has exacerbated the supply glut, despite an OPEC-led initiative to cut production to tighten the market.
Signs of faltering demand in big consumers such as Japan, China and India have also prompted weakening sentiment, dropping prices to levels comparable to when the output cuts were first announced late last year.
Reuters reported that Brent crude futures were down 18 cents, or 0.4 percent, at $47.19 per barrel at 0659 GMT.
U.S. West Texas Intermediate (WTI) crude futures were down 20 cents, or 0.5 percent, at $44.54 per barrel.
Prices for both benchmarks are down by around 14 percent since late May, when producers led by the Organization of the Petroleum Exporting Countries (OPEC) extended their pledge to cut production by 1.8 million barrels per day (bpd) by an extra nine months until the end of the first quarter of 2018.
Traders said the main factor driving prices lower was a steady rise in U.S. production undermining the OPEC-led effort.
“The U.S. oil rig count continued to rise, up by 6 last week,” Goldman Sachs said late on Friday.
“That’s 22 weeks in a row that oil rigs have been added, a record run,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
U.S. producers have added 431 oil rigs since a trough on May 27, 2016, Goldman said. If the rig count holds at current levels, the bank added, U.S. oil production would increase by 770,000 bpd between the fourth quarter of last year and the same quarter this year in the Permian, Eagle Ford, Bakken and Niobrara shale oil fields.
Supplies from OPEC and other countries participating in the output cuts, including top producer Russia, also remain high as some countries have not fully complied with their pledges.
There are also indicators that demand growth in Asia, the world’s biggest oil-consuming region, is stalling.
Japan’s customs-cleared crude oil imports fell 13.5 percent in May from the same month a year earlier, to 2.83 million bpd, the Ministry of Finance said on Monday.
India, which recently overtook Japan as Asia’s second-biggest oil importer, took in 4.2 percent less crude oil in May than it did a year ago.
In China, which is challenging the United States as the world’s biggest importer, oil demand growth has been slowing for some time, albeit from record levels, and analysts expect growth to slow further in coming months.
“Reducing the glut of oil will be challenging,” ANZ bank said on Monday.
(Reporting by Henning Gloystein; Editing by Tom Hogue and Christian Schmollinger)