Oil Slips As Higher US Output Looms Despite Dip In Drilling

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Brent for May settlement fell 38c to $65.11 a barrel on the London-based ICE Futures Europe exchange.

On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.6% at $61.70 a barrel.

While OPEC has complied with its 2017 production pledge, USA flows that are gaining a bigger slice of the Asian market may cause some countries to increase supplies, which could drag down crude prices after a rally of more than 40% since June, ING says.

Iran wants OPEC to work to keep oil prices around $60 a barrel to contain US shale producers, Oil Minister Bijan Zanganeh told The Wall Street Journal in a rare interview, while Saudi Arabia has played down shale's ability to upset the market and has indicated $70 for oil is acceptable. "In the shale plays, the expected April production will increase oil at the annual rate of 1.5 million" barrels a day.

Still, fears over increasing U.S. production continue to weigh on producers and investors. "That figure was close to in line with the February average weekly increase of 91,000 [barrels a day] and is still more than four times greater than the pace of production growth in 2017", said Tyler Richey, co-editor of the Sevens Report.

"The market continues to flip back and forth on the idea that increased global demand and a production cut is going to support prices. but USA production, and North American production levels in general, is going to negate a lot of the impact of that", said Gene McGillian, director of market research at Tradition Energy.

Energy investors weighed increased USA supply against the likelihood that the Organization of the Petroleum Exporting Countries (OPEC) will maintain supply cuts that have been in effect more than a year. That split is driven by differing views over whether $70 a barrel sends USA shale companies into a production frenzy that could cause prices to crash. At stake is OPEC's production limits, which are among factors helping the oil market's monthslong recovery.

"The price surge was triggered by positive U.S. labor market data that have further improved the oil demand outlook in the United States, the world's largest consumer country", Commerzbank analysts said in a note.

Helping the dip, hedge funds and money managers cut their bullish wagers on U.S. crude oil for the first time in three weeks, data showed on Friday.

Benchmark 10-year notes US10YT=RR last rose 2/32 in price to yield 2.8865 percent, from 2.894 percent on Friday. Only Russia pumps more, at almost 11-million barrels a day.