Oil prices drop as ECB warns on weaker economy, U.S. supply soars

Oil prices fell on Friday after the European Central Bank (ECB) warned economic weakness would continue and as U.S. crude output and exports chase new records, undermining efforts by producer club OPEC to tighten global markets.

U.S. West Texas Intermediate (WTI) crude oil futures were at $56.39 per barrel at 0122 GMT, down 27 cents, or 0.5 percent, from their last settlement.

Brent crude futures were at $65.96 per barrel, down 34 cents, or 0.5 percent.

Financial markets, including crude oil futures, took a hit after ECB President Mario Draghi said on Thursday the economy was in "a period of continued weakness and pervasive uncertainty". Europe`s economic weakness comes as growth in Asia is also slowing down.

A slowdown in economic growth would also likely result in stalling fuel demand, putting pressure prices.

On the supply side, prices have been receiving support this year from output cuts led by the Organization of the Petroleum Exporting Countries (OPEC). Together with some non-affiliated producers like Russia, the producer group has pledged to withhold around 1.2 million barrels per day (bpd) of supply to tighten markets and prop up prices.

But these efforts are being undermined by soaring U.S. crude oil production, which has increased by more than 2 million bpd since early 2018, to an unprecedented 12.1 million bpd. That makes America the world`s biggest producer, ahead of Russia and Saudi Arabia. For a graphic on Russian, U.S. & Saudi crude oil production, see - https://tmsnrt.rs/2EUHeFO U.S. TO BECOME TOP OIL EXPORTER?

As a result, U.S. crude exports have also been chasing new records, reaching 3.6 million bpd in February - more than OPEC members like the United Arab Emirates, Kuwait or Iran produce.

Some analysts even expect the United States to soon overtake Saudi Arabia as the world`s biggest oil exporter.

"In a pivotal geopolitical shift, the United States will soon export more oil and liquids than Saudi Arabia," consultancy Rystad Energy said this week. Liquids include non-crude oil products like natural gas liquids (NGLs).

"The (Saudi) kingdom currently exports some 7 million bpd of crude oil plus about 2 million bpd of NGLs and petroleum products, compared with the U.S. now exporting approximately 3 million bpd of crude oil and 5 million barrels of NGLs and petroleum products," Rystad said.

The consultancy "forecasts that U.S. oil production...will grow by close to another 1 million bpd in 2019."

Beyond added supply to global markets and likely downward pressure on crude prices, Rystad said this export surge would have huge benefits for the U.S. economy.

"The U.S. trade deficit will evaporate, and its foreign debt will be paid quickly thanks to the swift rise of American oil and gas net exports," said Rystad Energy senior partner Per Magnus Nysveen.