Oil under pressure from surprise addition of US rig
by Amanda Cooper,
2016-03-21 14:00:20.0
LONDON — Oil prices slid for a second day on Monday, under pressure from signs that some of the nimbler US producers increased drilling last week and from uncertainty surrounding a meeting of the world’s major exporters next month to discuss freezing output.
US energy companies last week added one oil rig after 12 weeks of cuts, according to data from industry firm Baker Hughes.
Oil rigs have fallen by two-thirds over the past year to their lowest since 2009, and this surprise addition suggested the drop-off in crude drilling may be stabilising after the oil price’s 50% rally since February.
Oil hit a 2016 high above $40 a barrel last week, encouraged by optimism that Organisation of the Petroleum Exporting Countries (Opec) and its major non-Opec counterparts could strike a deal next month to leave supply unchanged at January’s levels.
That could help mitigate one of the largest global build-ups of unwanted crude in modern times.
Brent crude futures were down 41c at $40.79 a barrel by 9.21am GMT, having hit a 2016 high of $42.54 last week, while US futures fell 68c to $38.76.
The Federal Reserve’s more cautious note last week on the outlook for US interest rates sapped the dollar of some strength. That theoretically encourages demand for dollar-priced assets such as commodities, as these become less costly for overseas investors.
"A cynic might say Opec has seen that mere talk of a freeze and a meeting is worth several dollars a barrel, so best stretch the whole process out before the damp squib is revealed," PVM Oil Associates’ David Hufton said.
"A March 20 meeting in Moscow has changed into an April 17 meeting in Doha, which is only six weeks ahead of the next full Opec meeting on June 2.
"Dollar strength that might reverse and a production freeze that might turn out to be an empty vessel are not the strongest foundations on which to be long oil at $40 a barrel," he said.
Brent futures are still set for their largest one-month gain since April last year, up by more than 13% so far in March, after having fallen in all but six out of the last 18 months.
Investors are becoming more friendly towards oil after an almost unbroken rout in the last year-and-a-half. Data on Friday showed money managers raised bullish bets on US crude to a five-month high.
"The rebound in crude oil prices in the past month appears to have stabilised the number of rigs at work in the US shale sector," ANZ said in a note to clients.
Chinese imports
China’s monthly oil imports from Saudi Arabia hit their second-highest level on record in February, while arrivals from Russia also surged, as weak crude prices prompted the world’s top energy consumer to bring in record high volumes last month.
China’s total oil imports rose about 20% on year to the highest yet on a daily basis in February, when prices near 10-year lows drove buying from a group of new importers and for state and commercial stockpiling.
Saudi Arabia was China’s top supplier in February with shipments of 1.38-million barrels a day, customs data showed on Monday, slightly below a record 1.39-million barrels a day in February 2012. Russia came in third, behind Angola, with shipments of 1.03-million barrels a day, up almost 48% on a daily basis from a year ago.
Reuters
Picture: SUNDAY TIMES
LONDON — Oil prices slid for a second day on Monday, under pressure from signs that some of the nimbler US producers increased drilling last week and from uncertainty surrounding a meeting of the world’s major exporters next month to discuss freezing output.
US energy companies last week added one oil rig after 12 weeks of cuts, according to data from industry firm Baker Hughes.
Oil rigs have fallen by two-thirds over the past year to their lowest since 2009, and this surprise addition suggested the drop-off in crude drilling may be stabilising after the oil price’s 50% rally since February.
Oil hit a 2016 high above $40 a barrel last week, encouraged by optimism that Organisation of the Petroleum Exporting Countries (Opec) and its major non-Opec counterparts could strike a deal next month to leave supply unchanged at January’s levels.
That could help mitigate one of the largest global build-ups of unwanted crude in modern times.
Brent crude futures were down 41c at $40.79 a barrel by 9.21am GMT, having hit a 2016 high of $42.54 last week, while US futures fell 68c to $38.76.
The Federal Reserve’s more cautious note last week on the outlook for US interest rates sapped the dollar of some strength. That theoretically encourages demand for dollar-priced assets such as commodities, as these become less costly for overseas investors.
"A cynic might say Opec has seen that mere talk of a freeze and a meeting is worth several dollars a barrel, so best stretch the whole process out before the damp squib is revealed," PVM Oil Associates’ David Hufton said.
"A March 20 meeting in Moscow has changed into an April 17 meeting in Doha, which is only six weeks ahead of the next full Opec meeting on June 2.
"Dollar strength that might reverse and a production freeze that might turn out to be an empty vessel are not the strongest foundations on which to be long oil at $40 a barrel," he said.
Brent futures are still set for their largest one-month gain since April last year, up by more than 13% so far in March, after having fallen in all but six out of the last 18 months.
Investors are becoming more friendly towards oil after an almost unbroken rout in the last year-and-a-half. Data on Friday showed money managers raised bullish bets on US crude to a five-month high.
"The rebound in crude oil prices in the past month appears to have stabilised the number of rigs at work in the US shale sector," ANZ said in a note to clients.
Chinese imports
China’s monthly oil imports from Saudi Arabia hit their second-highest level on record in February, while arrivals from Russia also surged, as weak crude prices prompted the world’s top energy consumer to bring in record high volumes last month.
China’s total oil imports rose about 20% on year to the highest yet on a daily basis in February, when prices near 10-year lows drove buying from a group of new importers and for state and commercial stockpiling.
Saudi Arabia was China’s top supplier in February with shipments of 1.38-million barrels a day, customs data showed on Monday, slightly below a record 1.39-million barrels a day in February 2012. Russia came in third, behind Angola, with shipments of 1.03-million barrels a day, up almost 48% on a daily basis from a year ago.
Reuters
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