Last week’s report from Baker Hughes shows that the number of operating rigs declined for the 7th time in 34 weeks. The increasing numbers of operating rigs, as well as increasing production, have been raising concerns that the U.S. shale oil producers which were able to cut their production cost dramatically over the past years are now a low-cost global competitor and would continue to undermine the OPEC agreement to cut supplies. In May this year, OPEC producers and 11 participating non-OPEC countries including Russia formally ratified the agreement first drafted last November to cut supplies by 1.76 million barrels per day for an extension. The new agreement extends the production deal for nine months until March 2018. However, the latest oil market report from OPEC showed that production increased by 173,000 barrels per day in July, after rising by 396,000 barrels in June and by 366,000 barrels per day in May, thanks largely to two exempted countries, Libya and Nigeria. However, due to militant attacks, Libya has lost around 30 percent of production in August. This has led to an OPEC production decline in the tune of 79,000 barrels per day in August.

Despite the agreement, the oil price (WTI) has suffered a major selloff on the day of the agreement extension and was down around 3 percent by the end of the day. However, it is trying to make a comeback on the new Saudi pledge to reduce exports by as much as a million barrels per day. Despite the recent week’s rise in price, the oil (WTI) is still down more than 4.5 percent since the agreement. In the first half of this year, crude oil price declined by around 15 percent, which is its worst H1 showing in 19 years. The North American benchmark WTI is currently trading at $49.7 per barrel and Brent at $5.6 per barrel premium to WTI. Recent Hurricane Harvey that battered Gulf Cost and led to refinery outage in tune of 4.2 million barrels per day, has pushed the landlocked WTI price lower. The refineries restarted but still capacity is down by more than 1.5 million barrels.

The report from Baker Hughes shows that the number of operating rigs in the United States declined to the lowest since June this year. There was a decline of 8 last week. A separate report showed that U.S. oil production dropped sharply to 8.78 million barrels per day due to hurricane effect. However, the production jumped to 9.35 million barrels per day as Harvey effect fades. The production was 9.53 million barrels per day before this massive drop. The production has increased by 1.1 million barrels per day since bottoming around July 2016. The International Energy Agency (IEA) forecasted that production is set to rise by 920,000 barrels in 2017 alone and by 780,000 barrels per day in 2018. So far, this year, production has increased by 580,000 barrels per day.

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