Oil falls to two-month low as drilling increases amid surplus

NEW YORK (Bloomberg) -- Oil dropped to the lowest in more than two months after U.S. producers increased drilling for a fourth week even as the market contended with abundant supplies.

Futures fell 1.5% in New York after slipping 3.8% last week. U.S. oil explorers expanded the number of rigs in action by 14 to 371 for the longest run of gains since August, Baker Hughes Inc. said Friday. Hedge funds and other money managers added the most bets in a year on lower West Texas Intermediate prices, according to U.S. Commodity Futures Trading Commission data.

Crude has moved lower since reaching almost $52/bbl in early June. Prices are still almost 70% above February’s 12-year low as output disruptions added to speculation that the worst of the market rout is over. While the global oversupply has faded, high inventories of both crude oil and refined fuels coupled with signs of faltering demand growth have stifled the price recovery.

“Fears about the fragile state of the global economy as well as the oversupplied nature of the oil market are the reasons behind last week’s dismal performance” for prices, Tamas Varga, an analyst at PVM Oil Associates Ltd. in London, said in a report. “The global crude-oil glut seems to have turned into a product glut.”

Rig Count

WTI for September delivery was at $43.55/bbl on the New York Mercantile Exchange, down 64 cents, at 1:40 p.m. London time. The contract lost 1.3% to $44.19 on Friday, the lowest close since May 9. Total volume traded Monday was about 28% below the 100-day average.

Brent for September settlement slipped 57 cents to $45.12/bbl on the London-based ICE Futures Europe exchange, trading at a $1.53 premium to WTI. The global benchmark crude dropped 51 cents to $45.69 on Friday, capping a 4% decline for the week.

Drillers added the most rigs last week since December, according to Baker Hughes. Rigs have been put back to work in seven of the past eight weeks. U.S. crude production has halted its slide, increasing for a second week through July 15, according to data from the Energy Information Administration.

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