Oil prices fell to the lowest settlement in more than a week on Monday, pressured by a stronger dollar, as data showed a decline in OPEC’s September compliance with a production-cut agreement and a weekly rise in the number of active U.S. oil rigs for the first time in a month.
November West Texas Intermediate crude dropped $1.09, or 2.1%, to settle at $50.58 a barrel on the New York Mercantile Exchange—the lowest finish since Sept. 21, according to FactSet data. The front-month contract was up about 2% for last week, up 7.7% for September and logged a quarterly rise of 10.5%. Based on the most-active contracts, however, prices were up around 12% from the August WTI settlement of $46.04 at the end of June. December Brent crude the global oil benchmark, fell 67 cents, or 1.2%, to $56.12 a barrel on London’s ICE Futures exchange.
A recent Reuters poll revealed that output among the Organization of the Petroleum Exporting Countries rose by 50,000 barrels a day in September as the cartel’s overall compliance with its supply-cut deal fell to 86%. Several countries such as Saudi Arabia and Angola bore the brunt of the cuts while other countries such as United Arab Emirates, Ecuador and Iraq engaged in a bit of free riding, only complying by 30%, say analysts. “Weak production discipline within OPEC and the cut exemptions for Libya and Nigeria should mean in our view that closely observed OECD stocks will not fall quite as quickly as expected,” said Commerzbank analysts in a recent report.
A resurgent dollar also took a toll, with the ICE U.S. Dollar Index tacking on 0.5%. As oil is priced in dollars, it becomes more expensive for holders of other currencies as the greenback strengthens. “It is not surprising to see some investors taking the chips off the table especially given the stronger dollar and possible higher U.S. oil production going forward and definitely OPEC’s production increases as well,” said Eugen Weinberg, head of commodities research at Commerzbank.
Recently oil had been gaining based on newfound optimism about OPEC’s ongoing effort to rebalance the market and eliminate about 2% of global supply with the help of external producers such as Russia. Oil producers at an OPEC-led meeting last month said the countries participating in the production-cut agreement, which include members as well as nonmembers of OPEC, reached record monthly compliance of 116% with the pact in August. However, on Friday in the U.S., which isn’t part of the agreement, Baker Hughes reported that the weekly number of active domestic oil-drilling rigs rose after three-straight weeks of declines. The data added to “concern that the latest bull run for prices could bring another wave of U.S. production to a market still grappling with elevated inventories,” said Robbie Fraser, commodity analyst at Schneider Electric.
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