By Alison Sider and Sarah McFarlane
Oil prices extended losses on Monday to trade near a four-month low after increased drilling activity in the U.S. indicated a strong rise in production was coming.
U.S. crude futures were recently down 33 cents, or 0.68%, at $48.45 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, was down seven cents, or 0.14%, at $51.69 a barrel on ICE Futures Europe.
Oil prices have fallen by around 10% since the start of the month as doubts have grown over whether cuts by the Organization of the Petroleum Exporting Countries are achieving their goal of draining global inventories. Previously bullish investors have liquidated their positions rapidly as the selloff spiraled.
"You really do have to get this oil inventory overhang solved. It's pretty clear that thus far, OPEC's efforts to make a dent in it haven't really worked," said Bill O'Grady, chief market strategist at Confluence Investment Management. Rising production in the U.S. is replacing much of what OPEC has cut.
Already a large number of bullish bets have been unwound during the recent downturn in price. Hedge funds and other speculative investors slashed their net bullish position in U.S. crude futures by 23% last week.
"The week to (March 14) saw a downright exodus of financial investors, who slashed their net long positions," said Commerzbank.
Oil prices jumped from near four-month lows Monday morning amid news reports that OPEC members favor extending their cuts beyond their initial six-month period, which expires in June. Analysts increasingly agree that the cuts would need to be extended to be effective. But prices quickly began to slide again.
"The production-cut agreement that was supposed to tighten the market -- it's not occurring at nearly the pace people expected," said Gene McGillian, research manager for Tradition Energy. "The idea that this is only a six month agreement is starting got creep back," Mr. McGillian said.
Meanwhile, rising U.S. output is offsetting the declining output from OPEC and other countries, including Russia.
"Nobody was expecting U.S. shale-oil production to pick up so much and so quickly," said Gnanasekar Thiagarajan, director of Commtrendz Risk Management.
On Friday, Baker Hughes Inc. data showed the number of active U.S. rigs drilling for oil had increased by 14 to reach 631 rigs, rising for the ninth straight week. The rig count is at its highest level since September.
"With this kind of growth pace that we're seeing, the price has to soften in the second half of the year in order to moderate the additions of rigs," said Bjarne Schieldrop chief commodities analyst at SEB Markets.
Earlier this month, the U.S. Energy Information Administration revised its production forecast upward to 9.2 million barrels a day in 2017 and 9.7 million barrels in 2018. Mr. Schieldrop said SEB Markets forecasts U.S. output will be significantly higher at 10.7 million barrels a day in 2018.
Gasoline futures rose 0.51 cent, or 0.32%, to $1.6040 a gallon. Diesel futures or 0.3 cent, or 0.2%, to $1.5115 a gallon.
Write to Alison Sider at firstname.lastname@example.org and Sarah McFarlane at email@example.com