Crude prices drop 1.5% as US rig count increases
12 September 2016
Crude prices fell over 1.5 per cent today after US oil drillers added rigs and as producers adapted to cheaper crude, with speculators cutting positions betting on further price hikes.
International benchmark Brent crude oil futures were trading at $47.19 per barrel at 0645 GMT, down 82 cents, or 1.71 per cent, from their previous settlement.
US benchmark West Texas Intermediate crude futures were down 86 cents, or 1.87 per cent, at $45.02 a barrel.
Traders said the price falls on Monday and Friday were a result of increasing oil drilling activity in the United States, which indicated that producers can operate profitably around current levels.
"The idea that we will continue to bounce off the $50 per barrel handle is proving correct," Reuters quoted Matt Stanley, fuel broker, Freight Investor Services (FIS) in Dubai, as saying, pointing towards "the dynamic of shale oil" as the main reason to have pulled prices back down.
"Each dollar is being used far more efficiently and, as a result, $50 oil appears much more palatable," Barclays bank said in a note to clients.
US drillers added oil rigs for a tenth week in the past 11, according to a Baker Hughes rig count report on Friday. It was the longest streak without rig cuts since 2011.
Oil's near six-per cent price decline since 8 September partly reverses a 10-per cent rally seen early in the month to around $50 per barrel.
The market was also under pressure from expectations of another flood of refined product exports from China later this year, as demand in Asia's biggest economy and oil consumer stutters.
Speculative oil traders also became less confident of higher oil prices, cutting their net long US crude futures and options positions for a second consecutive week last week, the US Commodity Futures Trading Commission (CFTC) said on Friday.
Traders said they were still eyeing statements regarding a potential freezing of oil output closely, although a broad agreement to meaningfully rein in oversupply was not currently expected.
Even if exporters agree on freezing output around current levels, analysts said that would do little to raise prices as most exporters are pumping out oil at or near record levels, and have adapted to do so at lower prices.
''Producers and service companies ... are well positioned to return to growth mode at much lower prices," Barclays said.
Oil fell for a second trading day in a row on Monday, after speculators cut their bullish bets by the most in three months last week and US crude drillers added more rigs for a tenth week running.
The price fall supports the idea that oil will continue to bounce off the $50 per barrel and effectively proves "the dynamic of shale oil" as the main reason to have pulled prices back down.
Oil's near six-per cent price decline since 8 September also partly reversed a 10-per cent rally seen early in the month to around $50 per barrel.