Commodities Round-up: Oil prices tumble as US production continues to increase

The oil markets began the week on the back foot, with prices falling amid rising drilling activity in the US as production from Opec countries remained steady.

At 10.30am GMT on Monday (20 March), prices for West Texas Intermediate crude fell 1.56% to $48.03 a barrel, while the cost of a barrel of Brent crude slipped 1.21% to $51.14.

On Friday, energy services firm Baker Hughes reported US drillers added oil rigs for the ninth consecutive week.

In the seven days to 17 March, the sector saw 14 rigs added, bringing the total tally to 631, the highest level since September 2015. Oil production in the US has risen to above 9.1 million barrels of oil per day (bpd), from 8.5 million bpd in June 2016.

Meanwhile, the deal between Opec and non-Opec producers, which was agreed late last year and aimed to curb production, appears to be having little effect on the glut at the moment, with three of the last four weeks showing substantial inventory increases.

"Oil has been unable to use the weaker US dollar to continue its recovery rally from last week's three-month lows as rising US production concerns continue to weigh upon the marketplace," said Henry Croft, research analyst at Accendo Markets.

"With the Baker Hughes rig count rising for a ninth straight week, investors will be hoping that Opec this week will reiterate commitment to production cuts, perhaps going so far as to begin talking up chances of further cuts in June."

The recent drop in oil prices has raised the question of how the world economy would cope with a another sustained slump. Crude prices have fallen 8% over the last two weeks, the biggest weekly drop in four months, and some industry experts have suggested the decline could continue for some time yet.

Conversely, however, some analysts believe that while some big oil producers would take a hit, and inflation would fall sharply, global growth would be much less affected than it was two years ago, when oil prices slumped to a multi-year low.

"We don't think a renewed crash in oil prices would have as large an effect on the world economy as it did in 2015-16," said Capital Economic's economist Simon MacAdam.

"Nonetheless, countries where GDP, trade and fiscal balances are oil-dependent, such as Russia and Saudi Arabia, would still suffer a further blow."