Oil drops from 2-1/2-yr highs as rising U.S. output drags on market

Oil Stock Markets

Oil prices on Friday dipped away from some of its highest levels since 2015, weighed down by rising U.S. output and the expected January re-opening of the Forties pipeline in the North Sea. 

The drop, though, came as crude future volumes declined rapidly as traders closed positions ahead of the upcoming Christmas and New Year breaks.

U.S. West Texas Intermediate (WTI) crude futures were at $58.18 a barrel at 0544 GMT, down 18 cents, or 0.3 percent, from their last settlement.

Brent crude futures, the international benchmark for oil prices, were at $64.75 a barrel, down 15 cents, or 0.2 percent.

Brent on Thursday ended at $64.90 a barrel, its highest close since June 2015. WTI has also been touching values not seen since mid-2015 over the past two months.

The dip on Friday was due to an outlook for rising supplies that triggered those holding long positions to sell-out ahead of the year-end holidays, traders said.

Also weighing on the market was the expected return of the 450,000 barrels per day (bpd) Forties pipeline system in the North Sea in January.

The pipeline, which delivers crude underpinning Brent futures, was shut earlier this month due to a crack. Operator Ineos said on Thursday it expected to complete repairs around Christmas and to gradually restart the system in early January.

Longer term, analysts said crude production in the United States <C-OUT-T-EIA> that is fast approaching 10 million bpd would also drag on oil prices, and undermine efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia to tighten the market.

Not all analysts expect a return of oversupply, though.

The OPEC-led pact to withhold supplies started in January this year, and the producer group and its allies decided in November to extend the cuts to cover all of 2018, instead of letting them expire next March, as had been planned.

The supply restraint has resulted in significant reductions of oil inventories and helped push up Brent prices by more than 45 percent since June this year.