Oil Edges Above $43 as U.S. Crude Supply Gains Amid Rig Decline

  • Gasoline, distillate fuel inventories increased in EIA report
  • Rigs targeting oil in the U.S. fell by 9 to 555: Baker Hughes

U.S. Oil Producers Prove Resilient Through Efficiency

Oil rose to more than $43 a barrel in New York as explorers idled more drilling rigs in an effort to curb the highest November supply since 1930.

Crude stockpiles in the U.S. rose 961,000 barrels to 488.2 million last week, according to an Energy Information Administration report Wednesday. The number of active oil rigs fell to 555, the least in five years, data compiled by Baker Hughes Inc. show. Prices climbed 2.7 percent on Tuesday after Turkey shot down a Russian jet and Saudi Arabia repeated its willingness to stabilize world markets. 

Oil has slumped 42 percent in the past year amid speculation a global glut will be prolonged as the Organization of Petroleum Exporting Countries pumps above its collective target. U.S. crude stockpiles are more than 100 million barrels above the five-year seasonal average.

"There was a further decline in the rig count in response to the drop in prices, and that’s not enough to rebalance the U.S. market, much less the global one," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "Crude supplies continue to rise even with a fall in the number of rigs. The EIA report was very bearish."

WTI, Brent

WTI for January delivery rose 17 cents to close at $43.04 a barrel on the New York Mercantile Exchange. It’s the highest settlement since Nov. 11. The volume of all futures traded was 19 percent below the 100-day average at 3:49 p.m.

Brent for January settlement advanced 5 cents to end the session at $46.17 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $3.13 premium to WTI.

Crude inventories at Cushing, Oklahoma, the delivery point for WTI futures, rose 1.74 million barrels to 58.6 million last week, the most since May.

U.S. refineries operated at 92 percent of capacity on Nov. 20, up 1.7 percentage points from the prior week. Refiners in the country typically accelerate activity during November after performing maintenance during a low-demand period. Crude production slipped by 17,000 barrels a day to 9.17 million. That’s down from a four-decade high of 9.61 million reached in June, weekly data show.

Resilient Output

"We’re still pumping more than 9.1 million barrels a day, which is a bit surprising given the drop in the rig count," Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors LLC who helps manage $14.6 billion, said by phone. "Production has been more resilient than expected."

On Nov. 23, Saudi Arabia said it was ready to “cooperate with all oil producers and exporters, from inside and outside of OPEC, to preserve the stability of the market and prices,” according to a statement. OPEC will meet Dec. 4 to review its output policy.

The U.S. Federal Reserve is projected to raise its benchmark rate from near zero at its Dec. 15-16 meeting, the first gain in almost a decade.

"What happens between now and the end of the year will depend on OPEC and the Fed,"  Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $128 billion of assets, said by phone. "We’re expecting OPEC to do nothing at the next meeting, because any action would just help their competitors. The market has already priced in a Fed rate increase."

Below $50

WTI oil is poised to average less than $50 a barrel for a fourth month, the longest stretch since the global financial crisis. The price rout means large, multinational, integrated energy companies are cheap and good for long-term investors, Russ Koesterich, global chief investment strategist at BlackRock Inc., said in a Bloomberg Television interview.

“They’re cheap, many of them have healthy dividends, and you have the additional benefit that they have downstream refining operations that help balance off the decline in revenue from their exploration and production,” he said.

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