Oil’s Bounce From Worst Week in Two Years Capped by Shale Fears

While  oil is rebounding from its biggest weekly decline in two years, a surge in U.S. shale still looms over the market.

Futures in New York were up 1.8 percent after tumbling 9.6 percent last week, advancing in tandem with a rebound in global equities. OPEC boosted estimates for rival supplies for a third month in a row as prices encourage U.S. drillers, who have raised the number of oil  rigs to the highest since April 2015. Still, OPEC’s president said U.S. shale won’t derail the group’s plan to clear a chronic surplus.

Last week’s tumble reversed the year’s gains in crude, after a rout in equities spread to commodities and the U.S. continues to ramp up output. Meanwhile, a weaker dollar that had driven oil’s advance in January has been rebounding this month, cutting market support. American drillers remain the biggest challenge to the Organization of Petroleum Exporting Countries and its allies as they curtail supply to prop up prices.

“Essentially what we see today is a reversal of Friday’s sell-off,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “The overshooting of prices in January has triggered a stronger supply response from U.S. frackers.”

WTI for March delivery added $1.07 to $60.27 a barrel on the New York Mercantile Exchange at 1:40 p.m. in London. The contract slid $6.25 last week to close at $59.20, the lowest level since Dec. 22. Total volume traded was about 30 percent above the 100-day average.

Brent for April settlement was at $63.71 a barrel on the London-based ICE Futures Europe exchange, up 92 cents, and traded at a $3.66 premium to WTI for the same month.

The U.S. oil rig count rose by 26, the most in a year, to 791 last week, Baker Hughes data showed on Friday. American weekly crude output topped 10 million barrels a day for the first time on record, and the government forecasts it will skyrocket to 11 million later this year. The U.S. is now a producer of the caliber of Saudi Arabia and Russia.

“The market will likely be reluctant to rebound too much as the sharp rise in the U.S. oil rig count on Friday has spurred some concerns over whether we will see a rapid increase in U.S. output,” said Jens Naervig Pedersen, an analyst at Danske Bank A/S in Copenhagen.

Other oil-market news:

Hedge funds scaled back bets on rising WTI by the most since August. They reduced their net-long position — the difference between bets on a price increase and wagers on a drop — by 4.7 percent to 472,792 futures and options during the week ended Feb. 6, according to the U.S. Commodity Futures Trading Commission. An exit from the OPEC deal may take two to five months, Interfax reported, citing Russia’s Energy Minister Alexander Novak. OPEC and its allies will set a plan for a gradual recovery of oil output after global inventories stabilize at five-year average levels. Oil investors rattled by the threat of U.S. output can find some cheer from diesel demand in Asia. Refineries being shut for spring-season maintenance is set to squeeze diesel supplies in the Asian market at a time when demand is being boosted by healthy economic growth. After a wait of about a quarter of a century, the world’s biggest oil buyer is finally getting its own crude-futures contract. In a challenge to the dollar-denominated Brent and WTI markers, China will list yuan oil futures in Shanghai on March 26.