Oil prices slip but Saudi-Iran tensions limit losses

[March 19, 2018]   By Ahmad Ghaddar

LONDON (Reuters) - Oil prices eased on Monday after rallying at the end of last week, but tensions between Saudi Arabia and Iran helped limit losses.

Prices had climbed on Friday after Saudi Crown Prince Mohammed bin Salman said the kingdom would develop nuclear weapons if arch-rival Iran did.

Petromatrix analyst Olivier Jakob said prices were "really giving back some of Friday’s short-covering."

Brent crude futures <LCOc1> were down 10 cents at $66.11 a barrel by 1052 GMT. U.S. West Texas Intermediate (WTI) futures <CLc1> fell 17 cents to $62.17 a barrel.

"This week there will be ... a pricing of some geopolitical risk with the crown prince going on a visit to the United States which is likely to provide a lot of headlines against Iran and the ... deal," Jakob said, referring to the nuclear pact Iran has with world powers on its nuclear program.

President Donald Trump has told European powers they must "fix the terrible flaws" in the deal or the United States would refuse to extend its sanctions relief on Iran.

Britain, France and Germany have proposed fresh European Union sanctions on Iran over its ballistic missiles program and its role in Syria's war in a bid to save the pact, Reuters reported.

A rise in U.S. rig counts last week also weighed on prices. U.S. drillers added four oil rigs in the week to March 16, bringing the total count to 800, the weekly Baker Hughes drilling report said on Friday.

"At the current oil price level, drilling activity – and thus output – in the U.S. is likely to increase further," analysts at Commerzbank said in a note.

 A pump jack used to help lift crude oil from a well in South Texas’ Eagle Ford Shale formation stands idle in Dewitt County, Texas, U.S., January 13, 2016. REUTERS/Anna Driver/File Photo

(For a graphic on the U.S. oil rig count click http://reut.rs/2HHhBao)

The U.S. rig count, an early indicator of future output, is much higher than a year ago as energy firms have boosted spending.

Thanks to high drilling activity, U.S. crude oil production <C-OUT-T-EIA> has risen by more than a fifth since mid-2016, to 10.38 million barrels per day (bpd), pushing it past top exporter Saudi Arabia.

Soaring U.S. output and rising production in Canada and Brazil are undermining efforts led by the Organization of the Petroleum Exporting Countries and Russia to curb supplies and bolster prices.

(For a graphic on Russia vs Saudi vs U.S. oil production click http://tmsnrt.rs/2G3bKz0)

(For a graphic on world oil supply and demand balance click http://reut.rs/2FIxGvP)

(Additional reporting by Tom Balmforth in London and Henning Gloystein in Singapore)

[© 2018 Thomson Reuters. All rights reserved.]

Copyright 2018 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.