Oil drops in New York, London as bulls charge for exits

Jessica Summers 8/21/2017

NEW YORK (Bloomberg) -- Oil in London slipped, with the U.S. benchmark joining the decline, as traders betting on higher prices were seen closing out positions after Friday’s rally.

West Texas Intermediate crude fell 0.7% in New York, while Brent dropped 1.2% from near a three-month high on Friday. While Libya halted loadings from its Sharara oil field, the nation’s Petroleum Facilities Guard said it’s working to reopen the pipeline linking the field to the Zawiya export terminal. Sharara has experienced several brief shutdowns caused by different groups this year.

“We may have gotten to that point where folks are starting to realize that it’s overdone here a little bit,” Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by telephone. “The speculative position was really long in the Brent barrel and to a certain degree, you are seeing some of that length get out here.”

Oil in New York has lingered below $50/bbl as investors weighed supply cuts by the Organization of Petroleum Exporting Countries and allies against rising output from U.S. shale as well as Libya and Nigeria, OPEC members that are exempt from production limits.

While the U.S. oil rig count dropped last week, American output has continued to expand, climbing to the highest level since July 2015. Meanwhile, OPEC is on track to curb ou tput by the most in five months in August, according to Geneva-based tanker tracker Petro-Logistics SA. 

West Texas Intermediate for September delivery, which expires Tuesday, fell 45 cents to $48.06/bbl at 10:24 a.m. on the New York Mercantile Exchange. Total volume traded was about 24% above the 100-day average. Prices advanced $1.42, or 3%, to $48.51 on Friday, trimming the weekly loss to 0.6%.

Brent for October settlement declined 85 cents to $51.87/bbl on the London-based ICE Futures Europe exchange. Prices rose 1.2% last week. The global benchmark crude traded at a premium of $3.78 to October WTI after reaching $4.06 on Friday, the widest since 2015.

U.S. drillers targeting crude trimmed the rig count by five to 763 last week, the second decline this month, according to data Friday from Baker Hughes Inc. Meanwhile, output from major shale plays is set to climb to a record next month. The number of active rigs in fields is still near the highest since April 2015, the data show.

The recent widening of the WTI-Brent spread is encouraging U.S. producers to export more crude, which in turn will prompt them to continue ratcheting up output, Yawger said. 

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