Oil prices tumbled in Monday's trading session, as rising US drilling activity and stable supply from OPEC countries, despite attempts for production cuts, squeezed the already inflated markets.
WTI crude has "found itself vulnerable to heavy losses.as the rising drilling activity in the USA reinforced the oversupply fears", said Lukman Otunuga, research analyst at FXTM, in a note.
"Nonetheless, countries where GDP, trade and fiscal balances are oil-dependent, such as Russian Federation and Saudi Arabia, would still suffer a further blow".
Shale oil production could rise more than expected if oil hits US$70 to US$80 a barrel, International Energy Agency executive director Fatih Birol said in a Bloomberg television interview.
Given the increase of 14 drilling rigs last week as reported by Baker Hughes, the potential for increased US production continues to build.
Meanwhile, news that financial officials at the Group of 20 industrialized and developing nations meeting dropped a disavowal of protectionism, at the request of U.S. Treasury Secretary Mnuchin, from a closely watched policy statement also weighed on oil prices. On the contrary, oil prices have fallen sharply below the pre-output-cut levels as seen in the chart below.
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Saudi's demand for oil products declined to 1.959 million bpd in January to from 2.21 million bpd the month before.
In a note to clients, AB Bernstein was quoted by Reuters as saying the reduction in OPEC production from the start of 2017 will start to show up between mid-March and mid-April, thereby improving crude prices.
A kind of price supporting factor at the moment is Libya, where oil output has allegedly dropped by about 80,000 barrels a day since clashes broke out.
"We can't do what we did in the '80s and '90s by swinging millions of barrels in response to market conditions", he said.
This means that speculators last week cut more than 150,000 contracts betting on firmer oil prices, a record high. At the same time Russian Federation and other non-OPEC producers' adherence to agreed cuts in the period was only at 37%.
Last week, WTI oil gained roughly 0.6% (http://www.marketwatch.com/story/oil-prices-rise-ahead-of-rig-count-with-weekly-gain-in-sight-2017-03-17), while Brent crude ended the week 0.8% higher. The report indicated that during the week before inventories of crude oil in the US declined by 237,000 barrels, which goes against the normal trend of increases in crude inventories during this time of year.