Oil cautious on rise in U.S. drilling, Iran sanctions opposition

SINGAPORE (Reuters) – Oil prices edged lower on Monday as a relentless rise in U.S. drilling activity points to increased output, while resistance emerged in Europe and Asia to U.S. sanctions against major crude exporter Iran.

Still, crude prices were near more than three-year-highs reached last week as markets expect Iran’s oil exports to fall significantly once U.S. sanctions bite later this year.

Brent crude futures LCOc1, the international benchmark for oil prices, were at $77.07 per barrel at 0010 GMT, down 5 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $70.66 a barrel, down 4 cents from their last settlement.

Brent and WTI last week reached their highest since November 2014 at $78 and $71.89 per barrel respectively.

“Around a million barrels of oil a day is likely to disappear from global oil markets if the U.S. sanctions on Iran bite,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

“But it is still far from certain that they will bite in the way intended… Germany has said it will protect its companies from U.S. sanctions, Iran has said French oil giant Total has yet to pull out of its fields and all the while it seems the Chinese are ready to fill the void created by the U.S.,” he said

Markets were also held in check by a rise in U.S. drilling for new oil production.

U.S. drillers added 10 oil rigs in the week to May 11, bringing the total count to 844, the highest level since March 2015, energy services firm Baker Hughes said on Friday.

Hedge funds and money mangers slashed their bullish wagers on U.S. crude in the latest week to the lowest level in nearly five months, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday, in an indicator that many financial oil traders are doubtful of significant further price rises.