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U.S. drilling boosting output while oil prices fall to a four-week low

Speculator's WTI net-longs up 4.6%, third-straight gain: CFTC . Prices rose earlier as dollar, equities rally on French polls

Petroleumworld 04 25 2017

Oil fell for a sixth day as the ramp-up of U.S. drilling signaled further production gains in the world's biggest crude-consuming nation.

Futures settled at four-week lows on both sides of the Atlantic. U.S. explorers added 5 rigs last week to cap the longest stretch of gains since 2011, Baker Hughes Inc. data show. An OPEC committee concluded that a six-month renewal of an output-cut deal is needed, delegates with knowledge of the matter said. Money managers boosted wagers that U.S. oil futures would increase in the week to April 18, government data showed. Oil rose earlier along with global equities after the first round of the French presidential election.

Oil retreated below $50 a barrel amid concern that rising U.S. crude output will offset efforts of the Organization of Petroleum Exporting Countries to trim a global glut. OPEC will decide at talks on May 25 whether to extend its curbs past June. Russia hasn't decided whether to back an extension, Energy Minister Alexander Novak said last week, while Saudi Arabia's Energy Minister Khalid Al-Falih said there may be a need to prolong the cuts.

"We had another rise in the rig count, which will send output higher, while Saudi Arabia and Russia are being cagey about extending the cuts," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. "The market is tired of empty gestures and needs to see solid evidence that they're having an impact on inventories."

West Texas Intermediate for June delivery fell 39 cents, or 0.8 percent, to $49.23 a barrel on the New York Mercantile Exchange. It was the lowest settlement since March 28. Total volume traded was about 21 percent below the 100-day average. Futures have tumbled 7.4 percent in the last six days.

Speculator Bets

Brent for June settlement declined 36 cents, or 0.7 percent, to $51.60 a barrel on the London-based ICE Futures Europe exchange. It was also the lowest close since March 28. The global benchmark oil finished the session at a $2.37 premium to WTI.

"There's a lot of managed money in the market," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "If OPEC and the Russians don't come to an agreement to prolong the cuts on May 25, they are going to flee."

U.S. crude output rose to 9.25 million barrels a day in the week ended April 14, the highest since August 2015, Energy Information Administration data show.

In France, a snap poll by Ipsos showed centrist Emmanuel Macron would win the second round of voting. Macron's spot in the second election round avoids a contest between the anti-European Union Marine Le Pen and the Communist-backed Jean-Luc Melenchon, curbing threats to the euro zone and encouraging investors to embrace more risk.

"The French vote has lifted all boats," Kilduff said. "Equities are up and the dollar is getting pummeled. Oil was unable to maintain its gains, which underscores the weakness of the market."

Oil-market news:

  • Halliburton Co. boosted sales in North America as the world's largest provider of fracking services was buoyed by rapidly rising rig counts in the prolific Permian Basin and other U.S. shale plays.
  • China's diesel fuel exports surged to a record as refiners drained commercial stockpiles swollen to the highest in almost a year and rushed to fulfill shipment quotas.
  • U.S. crude oil and distillate fuel supplies probably fell last week, while gasoline stockpiles rose, according to analysts surveyed by Bloomberg before an Energy Information Administration report on Wednesday.

Reporting by Mark Shenk from Bloomberg.

bloomberg.com 04 24 2017

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