Oil trades near $45 as U.S. continues drilling expansion

By Rakteem Katakey and Ben Sharples on 6/19/2017

LONDON (Bloomberg) -- Oil traded near $45/bbl following a fourth weekly loss as U.S. drillers continued to add rigs, blunting OPEC-led efforts to rebalance an oversupplied market.

Futures rose 0.4% in New York after capping the longest run of weekly declines since August 2015. U.S. drillers targeting crude added rigs for a 22nd straight week, the longest stretch in three decades, according to data Friday from Baker Hughes Inc. Demand will rise during the third quarter, United Arab Emirates Energy Minister Suhail Mohammed Al Mazrouei said.

Oil slumped to the lowest close in seven months on Thursday amid concerns that rising U.S. supplies will offset output cuts by OPEC and allies including Russia. OPEC and its partners have curtailed production in an attempt to reduce bloated oil stockpiles to the five-year average, but increasing numbers of rigs in America, as well as rising output in Libya, is putting that target in jeopardy.

“The number of oil rigs continued to rise last week and the market needs to see at what oil price will we not have further rig activation in the U.S.,” said  Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo. “There seems to be very low conviction in the market that there really will be any inventory drawdown in the second half of the year.”

WTI for July delivery, which expires Tuesday, was at $44.92/bbl on the NYME, up $0.18 cents. Total volume traded was about 10% below the 100-day average. The contract gained $0.28 to $44.74 on Friday.

Brent for August settlement advanced $0.23 to $47.60/bbl on the Europe exchange, after dropping 1.6% last week. Brent traded at a premium of $2.45 to August WTI.

U.S. drillers increased the rig count by six to 747 last week, the highest level since April 2015, according to Baker Hughes. American crude production has expanded to 9.33 MMbpd, EIA data show.

Libya’s oil production has risen to about 900,000 bpd after some fields restarted and the country’s biggest deposit, Sharara, increased output, according to a person with knowledge of the matter. Libya, exempt from the OPEC deal, plans to  boost output to the highest since 2013 by the end of July.

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Supply cuts need more time to have an impact on the market, the UAE’s Al Mazrouei told reporters in Dubai. Saudi Energy Minister Khalid Al-Falih made a similar comment in Saudi newspaper Asharq al-Awsat. OPEC will need to maintain its current supply quota through 2018 to prevent an increase in inventories, unless rig counts decline substantially, Morgan Stanley analysts wrote in a report. Kazakh Energy Minister Kanat Bozumbayev said his country agreed to the extension of the production-cut agreement because it’s counting on the deal to boost prices. There’s significant downside to U.S. oil-supply projections for 2017 and next year if prices remain at about $45/bbl, according to industry consultants FGE.

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