Oil Rebounds After U.S. Producers Reduce Rigs to Five-Year Low

Oil Producers Moving to Balance Production, Demand
  • Rigs targeting oil in the U.S. fell by 26 to 614 this week
  • U.S. added fewer jobs than projected in September amid turmoil

Crude rose after U.S. explorers reduced the number of rigs drilling for oil to a five-year low, signaling further drops in production.

West Texas Intermediate futures rebounded after Baker Hughes Inc. said rigs targeting oil in the U.S. fell by 26 to 614 this week. Prices fell as much as 1.7 percent earlier on government data that showed the U.S. added 142,000 jobs last month, compared with a gain of 201,000 projected in a Bloomberg survey.

Oil has stuck near $45 a barrel for more than four weeks after plunging to a six-year low in August, even as U.S. crude stockpiles stay about 100 million barrels above the five-year seasonal average and OPEC pumps above its output target. Oil holding steady in spite of bad news is usually a sign that a rebound is around the corner, said investor Jim Rogers.

"The falling rig count reinforces the view that production will fall," Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. "The market continues to move on the latest headline. If you step back you’ll see the market is in a holding pattern while we wait to see if the supply balance improves and the economic picture is clearer."

West Texas Intermediate for November delivery rose 80 cents, or 1.8 percent, to settle at $45.54 a barrel on the New York Mercantile Exchange. Futures slipped 16 cents this week. The volume of all futures traded was 20 percent above the 100-day average at 2:56 p.m.

Idled Rigs

Brent for November settlement increased 44 cents to $48.13 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $2.59 premium to WTI.

America’s oil drillers have idled more than half the country’s rigs since last October as the world’s largest crude suppliers battle for market share. The crude being pumped out of U.S. shale formations helped create a global glut that’s pushed prices down almost 60 percent since June 2014.

U.S. crude output declined 40,000 barrels a day to 9.1 million last week, the least since November, according to Energy Information Administration data. Production has slipped in seven of the last eight weeks.

Wages in the U.S. stagnated and the jobless rate was unchanged in September as people left the workforce, a Labor Department report showed Friday in Washington. A revised 136,000 gain the prior month was also lower than previously estimated. The jobless rate held at 5.1 percent.

Disturbing Data

The weak report vindicates the Federal Reserve’s decision to delay an interest-rate increase last month. Cooling overseas markets, a stronger dollar and lower oil prices that are hampering exports and manufacturing raise the risk that employers will hesitate before taking on more staff.

"We still have way too much capacity and not enough demand for it," Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone. "The employment data was disturbing and isn’t good for the demand outlook."

Gasoline fell after the National Hurricane Center said it looked likely that Hurricane Joaquin will remain offshore in the Atlantic, missing the U.S. East Coast entirely. Prices climbed as much as 4.1 percent Thursday on concern output at refineries in the region would be disrupted by Joaquin. The dangerous Category 4 storm pounded the Bahamas with wind, rain and high seas.

Gasoline futures for November delivery dropped 2.54 cents, or 1.9 percent, to close at $1.3414 a gallon in New York.

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