Oil snaps three-day rally as U.S. rigs climb for first time in 2019

By Tsuyoshi Inajima and Alex Longley on 1/28/2019

TOKYO and LONDON (Bloomberg) – The U.S. rig count rose for the first time this year, signaling further increases in the nation’s burgeoning crude production, as oil fell below $53/bbl. 

Futures in New York dropped as much as 2.2% after climbing 2.1% over the previous three sessions. The number of rigs targeting oil rose by 10 to 862 last week, Baker Hughes data showed, as rising crude prices buoyed optimism. In OPEC member Venezuela, President Nicolas Maduro abandoned his decision to sever diplomatic ties with the U.S., as he and National Assembly leader Juan Guaido both sought the backing of the country’s armed forces.

Oil has advanced 16% this year as OPEC+ start cutting production to ease concerns over a supply glut. Nevertheless, record American output, rising stockpiles and the continuing U.S.-China trade war have capped gains. Talks between the world’s two biggest economies later this week may provide the catalyst for crude to break through its recent narrow trading range.

“On a less eventful day so far, maybe the rig count matters,” said Jens Pedersen, a senior analyst at Danske Bank. “The big issue here is we are probably range-trading until we get further clarity on whether we will get any news from these trade talks.”

West Texas Intermediate crude for March delivery fell as much as $1.19 on the New York Mercantile Exchange and was down $0.99 at $52.70/bbl in London. The contract rose $0.56 to $53.69/bbl on Friday.

Brent for March settlement dropped $1.06 to $60.58/bbl on the London-based ICE Futures Europe exchange, and traded at a $7.87 premium to WTI. The global benchmark crude added $0.55 to settle at $61.64/bbl on Friday.

Venezuela’s Maduro on Saturday sought to deflate tensions with the U.S. by retreating from an earlier order to expel all diplomats. A small number of American diplomats in Venezuela will remain, Maduro said in an interview with CNN-Turk, even as he criticized U.S. Secretary of State Michael Pompeo, who urged other nations to “pick a side” between Maduro and his opponents.

Meanwhile, hedge funds are becoming more bullish on oil’s prospects. They boosted wagers on rising Brent crude prices by 17% in the week ended Jan. 22, the biggest increase since August, according to data released Friday by ICE Futures Europe. Short-selling bets have plunged by 36% this month, the biggest three-week decline in about a year.

Oil Market News

France, Germany and the UK will probably announce Monday the establishment of a Special Purpose Vehicle to contend with the U.S. sanctions against Iran.  The U.S. and China will hold a pivotal round of talks this week in an attempt to end their trade war.  Saudi Arabian Oil is taking a stake of almost 20% in South Korean refiner Hyundai Oilbank Co. for $1.6 billion, tightening the grip of the world’s top crude exporter on the biggest oil-consuming region.

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