MW: Oil prices start the week lower after jump in U.S. rig count
Oil prices fell Monday as lingering doubts over production cuts and concerns over increased drilling activities in the U.S. damped sentiment among traders and money managers.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG7, -1.76% traded at $53.06 a barrel, down 93 cents, or 1.7%. March Brent crude LCOH7, -1.82% on London’s ICE Futures exchange fell 99 cents, or 1.8%, to $56.10 a barrel.
The major headwind for prices over the weekend was the report from the Houston-based oil-field services company Baker Hughes Inc. BHI, -0.61% reported that drilling rigs in the U.S. had increased by four for the week ended Dec. 30. The uptick was the 10th straight week of rig-count growth and the U.S. now has the highest number of rigs in operation, at 529, since December 2015.
Dominick Chirichella, an analyst from the New York-based Energy Management Institute, said the elevated rig count was starting to alarm some observers and was a probable consequence of the recent oil-price rally. To put the figures into perspective, U.S. oil production was 9.225 million barrels a day in December 2015 compared with current levels of 8.77 million barrels a day as reported last week by the Energy Information Administration.
Higher oil production from the U.S. is an expected byproduct of higher oil prices caused by the decision of the Organization of the Petroleum Exporting Countries on Nov. 30 last year to trim output to 32.5 million barrels a day.
Despite market skepticism over the planned production cut, the global crude market still started the year on a relatively positive note, said the Melbourne-based ANZ Research.
“The next leg-up in prices probably won’t occur until the traders see evidence that production levels are falling,” ANZ said, adding that rising U.S. drilling activity and output are likely to keep prices in check.
Production data from major OPEC producers won’t be available until mid-February, leading most market watchers to predict prices will be more volatile than usual as snippets of information regarding the cuts are released by the media over the next six weeks.
This has been evident over the past week with prices fluctuating whenever reports involving major producers such as Saudi Arabia or Kuwait have been published.
Nymex reformulated gasoline blendstock for February RBG7, -1.84% — the benchmark gasoline contract — fell by 1.8% to $1.60 a gallon, while February diesel traded at $0.0000, 30 points lower.
