Crude Advances a Third Day as U.S. Drillers Idle More Oil Rigs

Oil Company Profits Decline, Dividends at Risk
  • Rigs targeting oil in the U.S. fell by 16 to 578: Baker Hughes
  • Chevron cuts more jobs and spending as oil slump saps profit

Crude advanced after the number of rigs drilling for oil in the U.S. slumped to a five-year low as producers curb investment because of low prices.

West Texas Intermediate futures climbed 1.2 percent. The number of active oil rigs fell by 16 this week to 578, adding to the 81 sidelined in the past two months, oilfield-services company Baker Hughes Inc. said. Chevron Corp. said that it’s reducing about 10 percent of its workforce, joining other energy companies in announcing cutbacks.

"The dramatic drop in the rig count is a sign that oil production will fall in the months ahead," Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone. "This is more evidence of pain in the oil patch. It’s an indication of what companies are doing in response to the weak market."

Oil failed to sustain a gain above $50 a barrel earlier this month as OPEC pumps above its quota and the International Energy Agency estimates the surplus will remain until at least the middle of 2016. Royal Dutch Shell Plc announced its worst loss in 16 years on Thursday, including $8.2 billion in impairments on exploration and production assets.

WTI, Brent

WTI for December delivery climbed 53 cents to close at $46.59 a barrel on the New York Mercantile Exchange. It’s the highest settlement since Oct. 16. Prices climbed 4.5 percent this week and 3.3 percent this month. The volume of all futures traded was 21 percent below the 100-day average at 2:45 p.m.

Brent for December settlement rose 76 cents, or 1.6 percent, to end the session at $49.56 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $2.97 premium to WTI.

Shell leads the pack in recognizing that drilling prospects are worth a lot less than they used to. Southwestern Energy Co., Whiting Petroleum Corp. and Anadarko Petroleum Corp. have likewise written off acreage value.

Futures dropped as much as 1.3 percent in early trading on signs that the global supply glut will linger. The Organization of Petroleum Exporting Countries raised output in October, according to a Bloomberg survey. U.S. crude stockpiles rose for a fifth week through Oct. 23, keeping inventories more than 100 million barrels above the five-year seasonal average, Energy Information Administration data showed Wednesday.

Gasoline Strength

Gasoline led gains in energy markets. Stockpiles of the motor fuel dropped 1.4 million barrels to 218.6 million last week as demand jumped to the highest since August, according to the EIA. U.S. refineries boosted operating rates in the week ended Oct. 23. American refiners typically slow after summer months to perform maintenance during a low fuel demand period.

"We’re seeing big drops in gasoline inventories while crude is building," Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone. “In two-to-three weeks we should see gasoline stockpiles start to gain while crude begins to fall as refineries continue to ramp up."

Gasoline futures for November delivery, which expired today, surged 5.54 cents, to $1.405 a gallon, the highest settlement since Oct. 9. The more-active December contract rose 3.22 cents to close at $1.3716.

Retail gasoline in the U.S. fell 0.5 cent to average $2.183 a gallon Thursday, the lowest since February, data compiled by Heathrow, Florida-based AAA show.

"Gasoline is the most interesting energy market right now," Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. "The strength in the market is a function of increasing demand, which is due to low prices."

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