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Oil prices increase 2% after US drilling falls

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World Pipelines,


According to Reuters, oil prices rose more than 2% after data showed US drilling slowed and a report said US$1.5 trillion worth of planned production was uneconomic at current prices.

Crude has halved in value over the last year as soaring global production overwhelmed demand and the much lower prices have now begun to hit drilling, particularly in the US. US drillers have cut the number of rigs in operation for three weeks.

"The fall in rig counts (is) supporting an otherwise bearish market," said Tamas Varga, Oil Analyst at London brokerage PVM Oil Associates.

Global benchmark Brent crude oil increased by US$1.28 to US$48.75/bbl before easing back to trade around US$48.30 by 1350 GMT. US light crude oil futures were up US$1.15/bbl at US$45.83

Goldman Sachs said rig data pointed to a decline in US oil production between 2Q15 and 4Q15 of more than 250 000 bpd.

Low prices should have long-term impact on oil production.

"While operators are seeking an average cost reduction of 20-30% on projects, supply chain savings through squeezing the service sector will only achieve around 10-15% on average," Energy Consultancy Wood Mackenzie said. “US$1.5 trillion of uncommitted spend on new conventional projects and North American unconventional oil is uneconomic at US$50/bbl.”

Commerzbank Head of Commodities Research, Eugen Weinberg, said reductions in US production should, eventually, turn oil market fundamentals, giving prices a lift: "We are confident that the incipient decline of production in the United States will herald a long-term and fundamental bottoming out process on the oil market.”

Despite such a cut to US, spending plans, analysts said prices were expected to remain at low levels for some time as other producers, especially in the Middle East and Russia, kept pumping near record levels.

"Oil producers continue to battle for market share [...] widening the global oil surplus," ANZ said.

The bank expects US crude to fall below US$40/BBL over the next six months and to average just US$41 next year. It expects Brent to average US$46/bbl in 2016.

Edited from sources by

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