Oil falls two per cent as concerns rise that increase in US production will undercut Opec deal

Francesca Washtell
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Oil prices have rallied more than 20 per cent since November (Source: Getty)

Oil prices fell more than two per cent today after figures indicated US production is growing and could undercut global deals to cut supplies and boost the global market.

Data released by US oilfield services provider Baker Hughes today showed US energy companies added oil rigs for a 10th week in a row to 529, extending a recovery in activity into an eighth month.

Barclays has said it estimates the US rig count to rise to 850 to 875 by the end of this year and for spending on exploration and production to get a 27 per cent boost.

Read more: Oil prices lift as Saudi Arabia looks to bolster Opec deal

Global benchmark Brent crude was down 2.28 per cent, or $1.30, to $55.80 a barrel in London afternoon trading. US benchmark was also down 2.28 per cent, or $1.23, to $52.76 a barrel.

The signs that US production is set to increase have made traders more jittery and increased concerns that it will undermine efforts by the Organisation of the Petroleum Exporting Countries (Opec) and other oil producers to cut output.

At the end of November, the Opec consortium agreed to a production cut for the first time in eight years, at 1.2m barrels per day (bpd). The group's output is now capped at 32.5m bpd.

In December, 11 non-Opec oil producers, led by Russia, agreed to slash output by a further 558,000 bpd, the first such agreement for more than 15 years.

Read more: Oil price rally pushes petrol and diesel to highest price in 18 months

Signs have so far been strong that Saudi Arabia and others are sticking to the landmark agreements.

Aggressive energy policy under President-elect Donald Trump, which many are expecting, could help raise US production and undo Opec's agreements even further.

Read more: Trading house Vitol nabs $1bn pre-finance oil deal with Iran

A stronger dollar also weighed on the price of the black stuff today, as the greenback surged on expectations of faster US interest rate hikes this year. Oil, which is a dollar-denominated commodity, becomes more expensive for non-dollar buyers when the US currency rallies, usually weighing on prices.

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