Oil rebounded from the biggest drop in a week amid signs that prices near a 5 1/2-year low are slowing drilling in the U.S.
Futures rose as much as 3.7 percent in New York and 3.3 percent in London. BHP Billiton Ltd., the largest overseas investor in U.S. shale, said it will cut the number of active drill rigs in the country by almost 40 percent. The rapid decline in oil prices may deter investment in all types of energy needed to meet future demand, the head of the International Energy Agency said.
“The market is trying to stabilize,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “You are seeing the rig count coming down. Production will take some time to come off. The U.S. economy is looking pretty good and demand will pick up.”
Oil has dropped more than 10 percent this year following a decline of almost 50 percent last year, the most since the 2008 financial crisis. The U.S. pumped crude at the fastest rate in more than three decades and the Organization of Petroleum Exporting Countries resisted calls to reduce supply.
West Texas Intermediate for March delivery gained $1.31, or 2.8 percent, to close at $47.78 a barrel on the New York Mercantile Exchange. The February contract expired Tuesday after falling $2.30 to $46.39. The volume of all futures was 1.4 percent below the 100-day average.
Brent for March settlement climbed $1.04, or 2.2 percent, to end at $49.03 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $1.25 to WTI.
Oil prices are likely to remain around $45 to $50 a barrel and then recover, OPEC’s Secretary-General Abdalla El-Badri said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland. Prices won’t extend their decline as low as $20 or $25 a barrel, he said.
BHP Billiton will reduce the number of operating rigs to 16 from 26 by July, the Melbourne-based company said in a statement.
“There is a reluctance for investments in energy projects in general,” Maria Van Der Hoeven, executive director of the IEA, said in an interview in Abu Dhabi. “We can see it everywhere. If these low oil prices delay investment, or investment decisions, the world will be in a problematic situation in the next decade.”
U.S. drillers took a record number of oil rigs out of service in the past six weeks. The oil rig count has fallen by 209 since Dec. 5, the steepest six-week decline since Baker Hughes Inc. began tracking the data in July 1987. The count was down 55 last week to 1,366.
“There’s a lot of oil to be pumped before we reach our peak output of the year,” Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees about $120 billion, said by phone. “It will be in the second half of the year when we’ll start to see the impact of low prices on output.”
Current prices should slow U.S. production growth in the second half of 2015 and Canadian output after two years, Daniel Yergin, the vice chairman of IHS Inc., a consultant in Englewood, Colorado, said in an interview on Tuesday in Davos.
Oil prices have probably reached their bottom, Iraqi Oil Minister Adel Abdul-Mahdi said in Kuwait. Crude’s slump isn’t justified by long-term economic fundamentals, he said. The price plunge means Iraq must try to raise output, Iraq’s Deputy Prime Minister Rowsch Nuri Shaways said at the World Economic Forum in Davos, Switzerland.
“It’s been left to the markets to come up with a price,” Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments, said by phone. “There has been a big impact in investment decisions, but it will take time for the impact to be reflected in the price.”
Crude stockpiles in the U.S., the world’s biggest oil consumer, probably expanded by 2.5 million barrels to 390.3 million barrels in the week ended Jan. 16, a Bloomberg News survey shows before data from the Energy Information Administration Thursday.
Inventories climbed 5.7 million barrels last week, the American Petroleum Institute said, according to reports on Twitter.
The country produced 9.19 million barrels a day in the week ended Jan. 9, the most in weekly records dating back to January 1983, according to the Energy Department’s statistical arm. The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked shale formations from Texas to North Dakota.
New residential construction in the U.S. rose more than forecast in December, capping the best year since 2007 and signaling the industry will probably keep expanding this year. Housing starts increased 4.4 percent to a 1.09 million annual rate, following the prior month’s 1.04 million pace that was higher than previously estimated, a Commerce Department report showed.
(An earlier version of this story was corrected to fix the year reference in the 10th paragraph.)