Oil Climbs as U.S. Rigs Extend Record Decline; OPEC Keeps Target

Updated on
Ali al-Naimi
Saudi Arabia's Petroleum Minister Ali al-Naimi. Photographer: Lisi Niesner/Bloomberg

Crude rose after explorers pulled U.S. oil rigs for the 26th straight week, bolstering speculation that production will slip. Oil in New York capped its first weekly drop since March after OPEC agreed to maintain output.

Rigs targeting oil declined by four to 642, Baker Hughes Inc. said on its website Friday. The count is the lowest since August 2010. Futures dropped earlier after the dollar gained following the release of U.S. payroll data.

The Organization of Petroleum Exporting Countries kept its current output ceiling at 30 million barrels a day at a meeting in Vienna. While all but one of 34 traders and analysts surveyed by Bloomberg had predicted the outcome, Morgan Stanley and Barclays Plc said there was still a risk the 12-nation group would boost its production target.

“There’s a feeling in the market that the huge drop in the rig count will translate into lower production,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “Prices are rising on the prospect of tighter U.S. supply. If we don’t see U.S. production start to drop soon prices are going to come under pressure again.”

OPEC 101: The Basics

West Texas Intermediate oil for July delivery advanced $1.13, or 2 percent, to settle at $59.13 a barrel on the New York Mercantile Exchange. Futures dropped 1.9 percent this week, snapping a record 11-week rally.

Crude Stockpiles

Brent for July settlement increased $1.28, or 2.1 percent, to end the session at $63.31 a barrel on the London-based ICE Futures Europe exchange. The contract slipped 3.4 percent this week. The European benchmark crude closed at a $4.18 premium to WTI, down from $5.26 at the end of last week.

U.S. crude stockpiles declined 1.95 million barrels to 477.4 million last week, an Energy Information Administration report showed Wednesday. Production accelerated 20,000 barrels a day to 9.59 million, the highest level since the EIA began tracking weekly output in January 1983.

OPEC produced 31.58 million barrels a day in May, exceeding its target for a 12th consecutive month, data compiled by Bloomberg showed.

“The rollover suggests that we’ll continue to see actual OPEC production that’s well above the target,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “This implies prices will be under pressure in the months ahead and there won’t be any tightening of supply.”

Unanimous Decision

None of the 12 members of OPEC proposed increasing the ceiling at the meeting, emphasizing compliance with the agreed output limit, Bijan Namdar Zanganeh, Iran’s minister of petroleum, told reporters in Vienna at its conclusion.

Zanganeh said his nation would increase production by 1 million barrels a day within months of sanctions lifting. OPEC’s meeting came just three weeks before a deadline for a deal on Iran’s nuclear program.

“There was no mention of Iran and what will be done to make room for their return, which seems likely,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone.

Oil tumbled earlier while the Bloomberg Dollar Index jumped as much as 1.2 percent. U.S. payrolls climbed in May by the most in five months and worker pay accelerated, signs of labor-market strength and incipient inflation that may prompt the Federal Reserve to raise borrowing costs this year.

“The OPEC decision was expected and priced in,” Mike Wittner, head of oil research at Societe Generale SA in New York, said by phone. “The better than expected economic data raises the prospect of a lift off in interest rates.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE