Oil Steady, But US Drilling Weakens Output Cut Deal

Oil prices were steady on Monday, but news of another increase in US drilling activity spread concern over rising output just as many of the world's oil producers are trying to comply with a deal to pump less in an attempt to prop up prices.

Global benchmark Brent crude oil prices were down 5 cents at $55.47 a barrel, while US crude futures traded up 9 cents at $53.26, Reuters reported.

The number of active US oil rigs rose to the highest since November 2015 last week, according to Baker Hughes data, showing that drillers are taking advantage of oil prices above $50 a barrel.

Tamas Varga, analyst at PVM Oil Associates in London, said the news was "not very encouraging" because it implied that only 75% of the OPEC production cut target was being met.

The Organization of Petroleum Exporting Countries and other producers including Russia agreed to cut output by almost 1.8 million barrels per day in the first half of 2017 to relieve a two-year supply overhang.

Oil prices have remained above $50 a barrel since producers agreed the deal in December, incentivizing drillers in low-cost US shale producing regions to ramp up activity.

"In our view the strong rise in US shale oil rigs is a good thing because it will be needed over the next three years as non-OPEC, non-US crude production continues to be hurt by the deep capex cuts both past and present in that segment," said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo.

He estimated the US rig count will continue rising at a rate of seven rigs per week over the first half of the year.