Oil extends losses as OPEC cut doubts weigh

By Devika Krishna Kumar

NEW YORK (Reuters) - Oil prices fell about 1 percent on Tuesday extending the previous session's sharp sell-off as the U.S. dollar recovered some early losses and doubts over implementation of a global deal to cut output loomed.

Members of the Organization of the Petroleum Exporting Countries (OPEC), such as Saudi Arabia, appear to be reducing production under a global deal to rein in oversupply but it is unclear whether other big producers like Iraq will follow suit.

Iraq, OPEC's second-largest producer, said it would raise crude exports from its main Basra port to an all-time high in February. The country's southern oil exports in the first nine days of January held steady near a record high, despite the agreed start of OPEC cuts on Jan. 1, according to a source and loading data.

 

"The petroleum markets are consolidating at the lower levels reached in Monday trade after doubts emerged over the degree of compliance with OPEC production cuts as Iraqi exports remain high, as well as the more general pace of market rebalancing," Tim Evans, energy futures specialist at Citigroup said in a note.

"Fresh reports that non-OPEC producers Russia and Kazakhstan have reduced output have produced little price reaction, with the failure to rally on bullish news suggesting that the market is overbought and vulnerable to a further downward correction."

Brent crude fell 90 cents, or 1.6 percent, to $54.04 per barrel by 11:06 a.m. EST (1606 GMT). U.S. crude futures was 69 cents, or 1.3 percent, lower at $51.27 per barrel.

Both contracts fell more than $2 a barrel, or around 4 percent, on Monday on doubts that OPEC and other key oil producers would cut output as promised to try to reduce global oversupply.

The dollar retraced some of the session's early losses against a basket of currencies, also pressuring greenback-denominated oil as a weaker dollar tends to encourage buying by consumers holding other currencies. [USD/]

Higher oil future prices through December encouraged investors to buy large volumes of crude contracts and many of these "long" positions are likely to be unwound unless the market stays strong, analysts and brokers said.

Supplies are also increasing in North America.

The average Canadian rig count for December was 209, up 36 from the 173 counted in November, and 49 higher year-on-year, said Matt Stanley, a fuel broker at Freight Services International in Dubai.

"A 30 percent increase in Canadian rigs in a year ... The bear in me is well and truly back," Stanley said.

Weekly inventory data from industry group the American Petroleum Institute (API) is scheduled at 4:30 p.m. EST.

Seven analysts polled ahead of the data estimated that crude stocks increased 600,000 barrels in the week to Jan. 6.

(Additional reporting by Christopher Johnson in London, Henning Gloystein in Singapore; Editing by Marguerita Choy and Susan Thomas)