Oil slips after US rig count rises; Iran concerns cap downside

CNBC

  • Oil prices held near more than three-year highs.
  • Rising rig count in the U.S. pointed to higher production.
  • The oil complex has been driven by supply concerns amid prospects of the U.S. reimposing sanctions on Iran.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices edged lower on Monday as a rising rig count in the United States pointed to higher production, but prices held near more than three-year highs and were on track to rise for a second consecutive month.

The oil complex has been driven by supply concerns amid prospects of the United States reimposing sanctions on Iran, while OPEC-led producers continue to withhold supplies.

Brent crude futures, the international benchmark, dipped 34 cents, or 0.5 percent, to $74.30 a barrel in early trading. Prices climbed as high as $75.47 last week, levels not seen since November, 2014.

U.S. West Texas Intermediate (WTI) crude futures were at $67.98 a barrel, down 12 cents, or about 0.2 percent, from their last settlement.

“There’s a small drop in trading this morning but volumes are low and there’s not much commitment in the selling. The overall trend is positive and there’s potential for the market to close higher again today,” said Michael McCarthy, chief marketing strategist at CMC Markets.

“The underlying strength in crude markets is quite impressive and a lot of it is predicated by sanctions… Other than that it’s the demand picture around the globe, and if that continues we could see higher prices.”

U.S. drillers added five oil rigs in the week to April 27, bringing the total count to 825, the highest level since March 2015, General Electric’s Baker Hughes energy services firm said.

“The increase in rigs is modestly bearish for oil prices because increasing rigs is usually associated with increasing supply,” Bill O’Grady, chief market strategist at Confluence Investment Management said in an email.

“However, the increase in rigs was modest and this news is overshadowed by other things, including Angola’s production decline, the potential for an end to the Iranian nuke deal, continued threats by Houthis to Saudi oil shipping and infrastructure.”

U.S. crude production has soared more than 25 percent since mid-2016 to a record 10.59 million barrels per day (bpd). Only Russia currently produces more, at around 11 million bpd.

Brent prices have gained nearly 6 percent this month, buoyed by expectations the United States will renew sanctions.

U.S. President Donald Trump has until May 12 to decide whether to restore sanctions on Iran that were lifted after an agreement over its disputed nuclear program.

“Precisely what happens with Tehran’s nuclear program remains the most significant driver in oil price sentiment,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA.

Oil prices stable on healthy demand, but oversupply looms later in 2018

CNBC

  • Oil prices were stable on Thursday, supported by healthy global demand but held back by the relentless rise in U.S. production.

Oil fracking California

Getty Images

Oil prices were stable on Thursday, supported by healthy global demand but held back by the relentless rise in U.S. production that is undermining efforts led by producer cartel OPEC to cut supplies and prop up markets.

U.S. West Texas Intermediate (WTI) crude futures were at $61.05 a barrel at 0129 GMT, up 9 cents, or 0.15 percent, from their previous close.

Brent crude futures were at $64.95 per barrel, up 8 cents, or 0.1 percent.

Prices were receiving some support from healthy demand. The Organization of the Petroleum Exporting Countries (OPEC) said on Wednesday that oil consumption was expected to grow by 1.62 million barrels per day (bpd) in 2018.

But looming over markets has been a relentless climb in U.S. crude output, which hit another record last week by rising to 10.38 million bpd, up by more than 23 percent since mid-2016.

Commercial crude inventories were up by 5 million barrels, at 430.93 million barrels.

U.S. crude production, which has already overtaken that of top exporter Saudi Arabia, is expected to rise above 11 million bpd later this year, taking the top spot from Russia, according to the International Energy Agency.

Soaring U.S. output, as well as rising output in Canada and Brazil, isundermining efforts by Middle East dominated OPEC to withhold supplies in order to bolster prices.

OPEC on Wednesday raised its forecast for non-member oil supply to almost double the growth predicted four months ago.

The group said non-OPEC producers would boost supply by 1.66 million bpd in 2018.

But since OPEC expects demand this year to grow by only 1.62 million bpd, that would leave the market slightly oversupplied and may require more or longer supply restraint.

OPEC and several other non-OPEC producers led by Russia began cutting supply in January, 2017 to erase a global glut of crude that had built up since 2014.

OPEC said its combined output dropped by 77,000 bpd to 32.186 million bpd in February, led by declines in Iraq, the United Arab Emirates and Venezuela.

These cuts and rising U.S. output mean that OPEC is losing market share.

“In 2018, demand for OPEC crude is forecast at 32.6 million bpd, down by 0.2 million bpd from the previous assessment and 0.2 million bpd lower than a year earlier,” OPEC said.

The crude oil “supply gap” risk

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The crude oil “supply gap” risk
Photo: Dave Walsh / VW Pics / UIG via Getty Images

A big question among oil experts these days is whether today’s worldwide investments in new supplies are too low to avoid risk of a “supply gap” opening up in the early 2020s as demand grows and existing fields decline.

The big picture: Two competing views presented this week offer a pessimistic and optimistic take on the situation, taking on opposite sides of the investment debate.

Fresh warning: The head of one of the world’s largest oil-and-gas companies says the surge in U.S. crude production is not enough to prevent problems from emerging in a few years.

  • “Even if the U.S. shale oil is dynamic, we do not invest enough in this industry,” Total CEO Patrick Pouyanné says on the new episode of the Columbia Energy Exchange podcast.
  • He says under-investment in recent years is still a problem in 2018.
  • “Post-2020, the price will go high, because we will have a lack of capacity, and even with the shale oil dynamic, the global production of oil will be not enough. We are under-investing,” Pouyanné says.

Don’t worry so much: A research note this week from Barclays analysts, however, suggests that these types of concerns are likely misplaced.

  • They argue that even with declines from mature fields, there has been enough new supply coming online from 2011–2017 even outside OPEC and U.S. shale to nearly offset it. And they don’t see that changing.
  • “In the next couple of years, projects that have already received a green light are coming online and will further mitigate those declines. That means that the ‘mature base’ of non-OPEC non-US supply is flat from now through at least 2022, and it leaves OPEC liquids, US tight oil, Canadian oil sands, and non-crude liquids available to meet incremental demand growth,” they write.