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Brent crude, the global oil benchmark, was poised for its first daily drop in four days and its biggest one day decline in nearly a month despite a deep production cut by Opec.
Brent crude slid 2.1 per cent to $55.53 a barrel on Monday, while West Texas Intermediate, the US oil standard, was down 1.8 per cent to $52.89 and if it were to hold on to those losses it would also be on track for its worst daily performance since January 18.
The sell-off came despite Opec’s monthly report released earlier in the day that showed the cartel lowered output by 1.1m barrels per day in January as part of a six-month deal to bolster prices. Strength in the US dollar, the currency in which oil is denominated, also proved a drag on oil as the dollar index rose 0.2 per cent.
Some analysts have warned that cuts agreed upon by Opec and other non-members like Russia at the end of last year could be offset by a ramp up in US production as oil prices stabilise. Indeed, US drillers have brought 117 oil rigs back online since the beginning of December, adding rigs in ten of the past 11 weeks, according to oilfield services provider Baker Hughes.
The US Energy Information Administration is slated to publish its monthly drilling productivity report today, which is expected to show an increase in US drilling.
While crude prices have nearly doubled since their January 2016 lows they are still 51 per cent lower than mid-2014 when the downturn in oil first began.