Picture: ISTOCK
Picture: ISTOCK

Singapore — Oil prices dropped more than 1% on Friday as a bounce-back in US production outweighed ongoing declines in crude inventories.

If Friday’s falls last, oil will post its biggest weekly price declines since October.

Brent crude futures were at $68.46 at 2.59am GMT, down 85c or 1.2% from their last close. On Monday, they hit their highest since December 2014 at $70.37 a barrel.

US West Texas Intermediate (WTI) crude futures were at $63.02 a barrel, down 93c or 1.5% from their last settlement. WTI marked a December 2014 peak of $64.89 a barrel on Tuesday.

Traders said the lower prices were prompted by a recovery in US oil production after a recent drop, as well as by an expected fall in demand when winter ends in the northern hemisphere.

US crude oil production stood at 9.75-million barrels a day on January 12, data from the Energy Information Administration (EIA) showed.

Output had fallen to 9.49-million barrels at the start of the year, due largely to a cold snap that shut down some production.

Most analysts expect US output to break through 10-million barrels a day soon.

Analysts also pointed to excessive long positions in financial oil markets as a likely brake on any upward momentum in prices, with many traders soon likely to cash in on recent price rises. Crude has jumped 14% since early December.

Jeffrey Halley, market strategist at futures brokerage Oanda in Singapore, said crude futures had been at "overbought levels for an extended period as record speculative longs built on the futures markets".

ANZ bank said "an upcoming soft patch in demand and extreme investor positioning does open up the possibility of some short-term weakness".

Overall, however, oil prices remain well supported, and most analysts do not expect steep declines.

The main price driver has been a production cut by a group of major oil producers around the Organisation of the Petroleum Exporting Countries (Opec) and Russia, which started to withhold output in January last year.

The supply cuts by Opec and its allies, which are scheduled to last throughout 2018, were aimed at tightening the market to prop up prices.

In the US, crude inventories fell by 6.9-million barrels in the week to January 12, to 412.65-million barrels.

That is their lowest seasonal level in three years and below the five-year average marker of about 420-million barrels.