Oil falls from three-week high amid doubts over cuts

NEW YORK (Bloomberg) -- Oil dropped from a three-week high amid doubts that OPEC and other producers will make promised output cuts while drilling increases in the U.S.

Futures fell as much as 1.5% in New York after failing to extend Thursday’s 2% rally. Prices climbed yesterday as Algeria’s Energy Minister Noureddine Boutarfa said OPEC and other producers are due to reach the 1.8 MMbpd reduction target next month. U.S. crude production rose to the highest level since April last week as higher prices increased drilling.

"We pushed to the upper end of the band and ran out of steam," Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone. "We’re probably going to consolidate and build up for another run higher. When prices move to the upper end of the range we run into a wall of fear that even if the promised cuts are made, they will made up by higher production in North America."

Last month’s pact between the Organization of Petroleum Exporting Countries and 11 other nations gave hope to a market stuck in a 2 1/2 year slump. While Saudi Arabia says more than 80% of the agreed cuts have been implemented, analysts and investors are waiting for data to gauge the extent of the decrease. The International Energy Agency says rising prices will spur U.S. shale output, and drillers are adding more rigs.

West Texas Intermediate for March delivery fell 59 cents, or 1.1%, to $53.19/bbl at 9:34 a.m. on the New York Mercantile Exchange. Total volume traded was about 14% below the 100-day average. The contract gained $1.03 to $53.78 on Thursday.

Output Cuts

Brent for March settlement dropped 78 cents, or 1.4%, to $55.46/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $2.27 premium to WTI.

A committee that was formed to monitor the production cuts will meet in Kuwait in mid-March, Boutarfa said in Algiers. Some countries haven’t yet made the full output reduction, but they will increase curbs over the coming months and all are “highly committed” to the deal, Kuwait’s Oil Minister Essam Al-Marzouk said Wednesday.

U.S. crude output climbed by 17,000 bpd to 8.96 MMbpd in the week ended Jan. 20, according to an Energy Information Administration report on Wednesday. Rigs targeting crude have rose by 235 to 551 since touching a two-year low in May, according to Baker Hughes Inc.