Oil drops on OPEC's announced production hike, but markets remain tense

SINGAPORE (Reuters) – The price of a barrel of Brent fell by more than 1.5% on Monday as traders take into account an increase in output expected Friday in Vienna at the headquarters of the Organization of Petroleum Exporting Countries ( OPEC).

Despite this, analysts said the global oil markets are likely to remain relatively tense this year.

The Brent LCoC1 crude oil futures contract, the international benchmark for oil prices, stood at $ 74.27 per barrel at 0402 GMT, down 1.7% from the previous close.

West Texas Intermediate (WTI) CLc1 US crude oil futures contracts were down $ 0.25 per barrel, down more than Brent by a slight decline in US drilling activity and a supply outage in Canada.

Prices first jumped after the announcement of the OPEC agreement at the end of last week as we did not see the supply increase as much as some of the prices. They had planned.

OPEC member countries and non-OPEC countries, including Russia, have reduced their production by 1.8 million barrels per day (bpd) since 2017 to tighten the market and support the prices.

Largely because of unplanned disruptions in places like Venezuela and Angola, the group's output has been lower than the targeted cuts, which it says will be offset by increases in supply, including the share of OPEC in Saudi Arabia. Although analysts warn that there is little space capacity for large-scale production increases.

"Saturday's OPEC + press conference brought more clarity on the decision to increase production, with forecasts for an increase of 1 million bpd at 2:18," Goldman Sachs said in a statement. a note on Sunday.

"This is a bigger increase than the one presented on Friday, although the goal remains to stabilize stocks, not to generate a surplus," the US bank added.

British bank Barclays said that OPEC and Russia's commitments would "bring the market a deficit of -0.2 million bpd in the second half of 2018 to a surplus of 0.2 million bpd" .

Wood Mackenzie Energy Council said the deal "represents a compromise between the response to consumer pressure and the need for oil producing countries to maintain oil prices and not to harm their economies."

In the United States, US energy companies first cut an oil rig last week, the first reduction in 12 weeks, lowering the total number of platforms to 862, Baker Hughes (GE.N) said Friday.

This allowed the platform to count on its lowest monthly gain since it dropped by two devices in March, with only three devices added in June. However, the overall level remains below the March 2015 peak compared to the previous week.

Goldman Sachs also warned that a "failure at Syncrude Canada's oil sands plant could cause North America to miss 360,000 b / d of supply." for the whole month of July ".

He added that this "will exacerbate the current global deficit, making the increase in OPEC production all the more necessary".