US crude dives 2.4%, settling at $47.37, nearly wiping out gains from Friday's rally

Key Points
  • Traders cut bullish bets on U.S. crude oil for second week - CFTC
  • U.S. oil rig count falls for second straight week - Baker Hughes
  • Libya declares force majeure on Sharara crude after blockade
An oil pump jack in Gonzales, Texas.
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Oil prices fell more than 2 percent on Monday, pulling back from last week's rally fueled by signs that the global market is starting to rebalance from chronic oversupply.

Benchmark Brent crude futures were down $1.06, or 2 percent, $51.66 a barrel by 2:26 p.m. ET (1826 GMT), after surging more than 3 percent in the previous session.

U.S. West Texas Intermediate crude futures ended Monday's session down $1.14, or 2.4 percent, at $47.37 a barrel. The contract had also risen 3 percent in the previous session.

"We are currently seeing some profit-taking after Friday's strong rally ahead of this week's inventory data," said Hans van Cleef, senior energy economist at ABN Amro.

"Fresh uncertainty about inventories and OPEC compliance (with agreed production cuts) could be enough reason to sell some of the long positions."

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U.S. hedge funds and money managers have already started lowering their bets on rising prices. Commodity Futures Trading Commission data showed on Friday that investors had cut bullish bets on U.S. crude for a second straight week.

Investors in Europe disagree on the outlook, however, as latest data from the InterContinental Exchange showed speculators raised bullish Brent crude bets last week.

The world remains awash with oil despite a deal struck by some of the world's biggest producers to rein in output. Rising U.S. production has been a major factor keeping supply and demand from balancing.

However, there are indicators that U.S. output may soon slow, as energy firms cut rigs drilling for new oil for a second week in three, energy services firm Baker Hughes reported on Friday. Drillers slashed five rigs in the week to Aug. 18, decreasing the count to 763.

"The rig count suffered its biggest fall since January, adding to signs that the market is tightening," ANZ bank said.

Also, U.S. commercial crude inventories have fallen almost 13 percent from their March peaks, to 466.5 million barrels.

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The oil minister of Kuwait, which is participating in OPEC-led production cuts, said U.S. crude stocks were falling more than expected because output cuts were taking effect.

Azerbaijan, not an OPEC member but one of the countries which has committed to the production curbing deal, also remains committed to decreasing output, the head of state oil company SOCAR told Reuters in an interview.

Elsewhere, a shutdown of Libya's Sharara oilfield due to a pipeline blockage provided some upside. Libya's National Oil Corp declared force majeure on loadings of Sharara crude from the Zawiya oil terminal on Sunday.

Analysts said falling crude inventories, despite rising output, indicated the market was tightening.

"The trajectory of crude inventories is clearly down and it will be surprising if the market will be able to ignore continued drawdowns," said William O'Loughlin, investment analyst at Australia's Rivkin Securities.