Crude falls as rising rig count seen boosting U.S. production
NEW YORK (Bloomberg) -- Crude declined below $53/bbl as the ramp-up of shale drilling spurred speculation that surging American output will offset OPEC-led efforts to cut a global supply surplus.
Futures fell as much as 1%. U.S. explorers added 11 rigs last week to cap the longest stretch of gains since 2011, data from Baker Hughes Inc. show. American crude output climbed to the highest level in more than a year in the week ended April 7, according to the Energy Information Administration. Prices rebounded earlier as the dollar dropped against it’s peers, boosting the appeal of commodities.
The expansion in U.S. drilling is damping optimism that had lifted prices above $53/bbl 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 supplies fell from a record, OPEC said Wednesday in a report that rivals in the American shale patch are growing stronger.
"The rig count has climbed 32 of the last 36 weeks," Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania, said by telephone. "Production rose for an eighth week and the EIA has said we will be pumping 9.9 MMbpd in 2018. U.S. producers are strong and are only going to get stronger."
West Texas Intermediate for May delivery fell 41 cents to $52.77/bbl at 12:15 p.m. on the New York Mercantile Exchange. Futures gained 1.8% last week to close at $53.18/bbl. Total volume traded was about 39% below the 100-day average.
Brent for June settlement slipped 38 cents to $55.51/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $2.30 premium to June WTI. No futures were traded in New York or London on Friday due to the Good Friday holiday.
Contango grows
Contango, the market structure where the near-term contract trades at a discount to those for expiration later, has been growing. The spread between May and June Brent has widened to 51 cents, from 29 cents on April 3.
Saudi Arabia’s Energy Minister Khalid Al-Falih said Monday that OPEC members and their allies are showing “very good” compliance with the promised output cuts they began making in January. The oil market is on the road to re-balancing, Al-Falih told reporters at a conference in Riyadh.
The U.S. oil 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.
