April 17, 2017
Oil declined below $53 a barrel as the U.S. continued to ramp up drilling, stoking concern that the nation’s surge in output this year will offset OPEC-led efforts to cut a global supply surplus.
Futures fell as much as 1 percent in New York, paring last week’s 1.8 percent advance. U.S. explorers added 11 rigs last week to cap the longest stretch of gains since 2011, according to data from Baker Hughes Inc. Crude fell even as Saudi Arabia’s Energy Minister Khalid Al-Falih said Monday that the oil market is on the road to re-balancing.
The recovery in U.S. drilling activity is damping optimism that had lifted prices above $53 a barrel after some members of the Organization of Petroleum Exporting Countries expressed support for prolonging production cuts with other nations beyond June. While U.S. crude stockpiles declined from a record, OPEC said Wednesday in a report that rivals in the American shale industry are growing stronger.
“The continued build in the U.S. drilling rig count will weigh negatively on markets in the short term,” said Edward Bell, commodities analyst at Dubai-based bank Emirates NBD PJSC. “The performance of the U.S. oil industry will act as the top-side barrier to oil markets this year and will balance against any short-term spikes related to concerns about geopolitics.”
West Texas Intermediate for May delivery fell as much as 55 cents to $52.63 a barrel on the New York Mercantile Exchange, before trading at $52.73 a barrel at 2:51 p.m. in Dubai. Futures gained 94 cents last week to close at $53.18 a barrel. Total volume traded was about 47 percent below the 100-day average.
Brent for June settlement dropped as much as 58 cents, or 1 percent, to $55.31 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $2.27 premium to June WTI. No futures were traded in New York or London on Friday due to the Good Friday holiday.
See Gadfly commentary: OPEC warns of a world that still has far too much oil
OPEC members and other oil producers are showing “very good” compliance with the output cuts they pledged to make starting in January, Al-Falih told reporters at a conference in Riyadh. Oil inventories are rising partly because of refinery maintenance, he said.
“Market watchers are still a little bit concerned about how OPEC will comply with the production cuts,” Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp., said by phone. “Any signs of over-production will see quite severe selling in the oil market.”
The U.S. drill rig count climbed to 683 last week, the highest since April 2015 and a 13th week of gains, Baker Hughes data showed on Friday. The number of working rigs has more than doubled from a 2016 low of 316 in May. Explorers in Texas led the week’s growth, with eight more rigs put to work in the Permian Basin in the western part of the state and in neighboring New Mexico, while three started up in the Eagle Ford of south Texas.
China’s economy accelerated for a second-straight quarter, according to data from the National Bureau of Statistics. Gross domestic product for the the world’s second-biggest oil user increased by 6.9 percent in the first three months. Hedge funds boosted bets on higher WTI crude prices a second week as futures topped $53 a barrel for the first time in a month, U.S. Commodity Futures Trading Commission data show. Nigeria will revive oil production this summer as it completes maintenance and repairs, and expects fellow OPEC members to continue to cut their output in the second half of the year, Oil Minister Emmanuel Kachikwu said.