Oil Declines as Dollar Advances, U.S. Shale Drilling Picks Up

  • Rigs targeting crude in U.S. rose by 17 to 583: Baker Hughes
  • U.S supply probably rose 2.5 million barrels: Bloomberg survey

Crude Positioning May Be a Bit Too Exuberant

Oil dropped as the dollar climbed and as the revival of U.S. shale drilling boosted the country’s production outlook.

Futures fell 1.5 percent in New York. The dollar rose 0.3 percent against leading currencies, making commodities priced in the greenback less appealing to investors. U.S. oil drillers boosted the rig count by 17 to 583 last week, the most since October 2015, according to Baker Hughes Inc. A government report on Wednesday is projected to show that U.S. crude stockpiles climbed for a fifth week, according to a Bloomberg survey.

Crude prices have fluctuated above $50 since the Organization of Petroleum Exporting Countries and 11 other nations agreed to start curbing output by 1.8 million barrels a day. While OPEC members have implemented most of their cuts and Russia says its own reductions are ahead of schedule, U.S. production has edged higher as drillers add rigs. Rising tensions with Iran aren’t yet seen threatening a nuclear deal that lifted sanctions on the country’s oil exports.

"Prices are under pressure because of high inventories," Sarah Emerson, managing director of ESAI Energy in Wakefield, Massachusetts, said by telephone. "This should be the case for the next couple of weeks, until inventories start to decline."

West Texas Intermediate for March delivery slipped 82 cents to close at $53.01 a barrel on the New York Mercantile Exchange. It was the biggest decline since Jan. 18. Total volume traded was about 31 percent below the 100-day average.

Brent for April settlement fell $1.09, or 1.9 percent, to $55.72 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.09 premium to April WTI.

Ample Inventories

U.S. crude supplies probably expanded by 2.5 million barrels last week, according to the median estimate in a Bloomberg survey before an Energy Information Administration report on Wednesday. Analysts projected the report will show that U.S. fuel stockpiles rose while refineries cut operating rates.

See also: Investors have never loved OPEC so much as cartel sticks to cuts

Prices climbed last week as U.S. President Donald Trump’s administration imposed new sanctions on Iran and warned the Islamic Republic that it was “playing with fire” by testing missiles.

Iran carried out further tests during an annual military exercise on Saturday, a day after Trump imposed fresh sanctions on a raft of individuals and companies in response to the country test-firing a ballistic rocket. While the missile tests didn’t contravene the nuclear accord signed in 2015, they are seen by some as going against a United Nations Security Council resolution that enshrines the agreement. 

"Given the valuation of the dollar and the high inventory level its hard to justify these prices," Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $6.1 billion, said by telephone. "We’ve built a lot of good news into the oil price, which makes it vulnerable.

Oil-market news:

  • Saudi Arabian Oil Co. picked four banks to advise on its first bond sale, two people familiar with the matter said, ahead of plans for the world’s largest initial public offering.
  • OPEC is scheduled to release its monthly report Feb. 13, which will include January figures, the first month of supply cuts.
  • Oil demand will be an estimated 400,000 barrels a day greater than supply this year, Bjarne Schieldrop, chief commodities analyst at SEB, said in an e-mailed note.
  • As investors are on tenterhooks over U.S. policies and whether OPEC and other nations will curb output as pledged, Brent crude may oscillate between $52 and $62 a barrel, according to Kho Hui Meng, head of the Asian arm of Vitol Group.
  • Iraq’s exports decreased by 187,000 barrels a day to 3.323 million barrels a day in January from the previous month, according to a person familiar with the matter, who asked not to be identified because the data isn’t public.
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