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Oil prices decline on production questions

A report from Wood Mackenzie finds hot spots in production emerging with oil price recovery.

By Daniel J. Graeber
Crude oil prices drift lower as some parties to an OPEC agreement to trim production not necessarily signalling full compliance. File photo by Monika Graff/UPI
Crude oil prices drift lower as some parties to an OPEC agreement to trim production not necessarily signalling full compliance. File photo by Monika Graff/UPI | License Photo

NEW YORK, Dec. 19 (UPI) -- Crude oil prices drifted lower in early Monday trading as questions lingered over whether or not parties to an OPEC agreement were playing ball.

Members of the Organization of Petroleum Exporting Countries in late November agreed to cap production at 32.5 million barrels per day starting in January. Meeting that level would require cuts in output from members and non-member states.

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The deal is designed to bring balance back to an oil market favoring the supply side. Oil prices faltered last week amid differences over when that balance would occur. A decision by the U.S. Federal Reserve to raise interest rates last week added further negative headwinds.

David Hufton at broker PVM said in a research note for Monday that reported levels of production from Libya, which is exempt from the deal, and Russia, one of the key non-member state contributors, bring compliance questions to the forefront of the market conversation with just a few short weeks before the start of January. Russia has said cuts could be gradual and it's unlikely non-OPEC members will meet the terms of the deal over the first half of the year.

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Moments before the opening bell on Wall Street, the price for Brent crude oil was down 0.3 percent to $55.04 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, was lower than the previous close by 0.4 percent to trade at $51.71 per barrel.

Oil holding above the $50 mark has brought some investments back into the picture. U.S. shale has proven to be more resilient than initially expected and oilfield services company Baker Hughes last week reported a rise in exploration and production work for the seventh straight week.

On Monday, consultant group Wood Mackenzie said in a report that parts of the United States were primed for recovery now that oil prices seem to have found a floor at around $50 per barrel.

The "hot" production centers right now, the report said, are U.S. oil basins like the Permian shale in Texas and reserves off the coast of Brazil, which are situated beneath a thick layer of salt.

The Permian basin could see production grow by as much as 750,000 bpd next year if crude oil prices hold steady. An estimated 50 billion barrels of oil lies off Brazil's coast, a volume that's expected to put the South American country on par with some of the world's top oil producers.

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For OPEC members, Russian oil company Lukoil said it's received no orders to trim production from one of the largest oil fields in Iraq.

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