Oil holds gains above $58/bbl as U.S. drillers pause rig expansion

By Mohammed Aly Sergie and Heesu Lee on 12/26/2017

PARIS and SEOUL (Bloomberg) -- Oil held gains above $58/bbl as trading resumed following the Christmas holiday and after U.S. explorers refrained from adding rigs for a second week.

Futures were little changed in New York after gaining 2% last week. The number of U.S. rigs targeting oil remained unchanged at 747, Baker Hughes data showed Friday. A repair of the North Sea’s Forties Pipeline System is complete and pressure testing has started, operator Ineos Group said Monday. The halt of the line earlier this month sent prices surging.

Oil is heading for a second yearly advance as the Organization of Petroleum Exporting Countries and its allies including Russia prolong supply curbs through the end of 2018. Iraq’s Oil Minister Jabbar Al-Luaibi said Monday that he’s optimistic prices will gain next year with global stockpiles falling and demand rising in China and India.

"The expectations of the return of the Forties pipeline may cap some of the upside potential triggered" by the Iraqi oil minister’s comments, Hans van Cleef, a senior energy economist at ABN Amro, said by email. “I wouldn’t expect much fireworks today as indeed liquidity is low.”

ABN is among the most bullish banks on oil in 2018, according to a Bloomberg survey. Its 2018 forecast for Brent as of Nov. 16 is $70/bbl, according to data compiled by Bloomberg. Brent averaged $54.61 so far for 2017.

West Texas Intermediate for February delivery was at $58.45/bbl on the New York Mercantile Exchange, down 2 cents, at 7:26 a.m. in New York. Total volume traded was about 69% below the 100-day average. The contract on Friday added 11 cents, or 0.2%, to $58.47.

Brent for February settlement lost 9 cents to $65.16/bbl on the London-based ICE Futures Europe exchange. Prices gained 35 cents, or 0.5%, to $65.25 Friday. The global benchmark crude traded at a premium of $6.71 to WTI.

Despite a rally in crude prices, this year’s drilling ramp-up has slowed since peaking in August as investors in the oil industry are pushing for returns over growth, a large backlog of drilled wells still needs to be fracked and technology increasingly allows producers to tap more from each hole.

“It’s a bit too early to say whether U.S. rigs will continue to decline as we can’t ignore the fact that it’s winter and some seasonal factors could be stalling drilling activity,” Will Yun, a commodities analyst at Hyundai Futures Corp., said by phone. “The shutdown of the Forties pipeline has kept prices higher and it will support oil’s bull run until at least the end of this year.”

Oil-market news. Russia is keeping this year’s oil production at its 2016 level of about 10.98 MMbpd as it complies with the OPEC deal to reduce output, Energy Minister Alexander Novak said on Rossiya 24 TV. National Iranian Oil Co. may soon update its estimate of the country’s oil reserves after about 30 studies by foreign oil companies found higher reserves and production capacity than previously estimated, the Oil Ministry’s news service Shana reported, citing Gholamreza Manouchehri, head of NIOC’s Development Engineering Department. China’s Sinochem Group used blockchain technology twice, helping to “optimize” financing costs by 20 to 30%, according to a report from the official Xinhua News Agency posted on the state-owned company’s website.

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