Crude oil prices firm, set for biggest weekly gain since mid-May

Marcus Newton
July 4, 2017

The latest Baker Hughes data recorded a decline in U.S. drilling rigs for the first time in 24 weeks which triggered some optimism that the recent decline in prices had caused some pull-back in drilling activity by U.S. shale producers.

Brent crude oil futures went up 0.50 dollar or 1.05 percent to close at USD 47.92 a barrel at NYMEX. Shale explorers broke the longest stretch of uninterrupted growth in three decades as rigs targeting crude fell by 2 this week, bringing the total to 756, according to Baker Hughes Inc. data reported Friday. There are signs of a slowdown in the U.S., but Libya is adding more oil to the market as it restarts fields that are exempt from OPEC's production curbs.

Much of that Canadian oil is already pouring into storage tanks in the USA, rattling traders who last week pushed prices to a half-year low. Several banks have cut their outlook for oil prices in the second half of 2017, saying that despite OPEC's guaranteed production cuts the surplus is still substantially higher than it should be.

"For example, tighter monetary policy is a cyclical headwind for oil, while a secular demand rotation into liquid petroleum gases and out of gasoline/diesel will remove support from WTI crude oil prices".

Oil prices climbed for a seventh straight session on Friday, thanks to a weaker US dollar, in their longest bull run since April but were still set for the worst first-half performance since 1998.

WTI Crude Oil
Weekly August West Texas Intermediate Crude Oil

The price of WTI is down $6.29 (12.02 percent) this year, and the average price is $49.95. We noted how the continued expansion of United States shale oil output and the introduction of new energy alternatives have diminished OPEC's ability to influence the oil markets. That makes Venezuela the third largest supplier of crude to the USA, after Canada's 3.556 million bpd and Saudi Arabia's 1.02 million bpd.

The rig count drop follows a report Wednesday that U.S crude output fell by the most in nearly a year last week amid field maintenance in Alaska and tropical storm Cindy, while gasoline inventories fell for a second week.

"I think the extent to which Saudi Arabia bled revenue during 2014-2016 forced them back to the OPEC table before the job of really turning the screw on USA shale and other non-OPEC supply was completed", said David Fyfe, chief economist at trading firm Gunvor. "This creates risks that the normalisation in inventories will not be achieved by the time the OPEC cut ends next March".

Markit and ISM are both slated to release June figures for their manufacturing indexes this morning.

Since plunging to an all-time low of 404 in May previous year, rig counts have generally been rising over the past 12 months, with the addition of a flood of new units due to the rapid growth in American shale production. Chairman Mustafa Sanalla said in April he wanted to boost national output to 1.1 million barrels a day by August. Libya, like Nigeria, is exempted from the cuts deal, though its oil production and exports remain vulnerable to disruptions by armed factions and restive workers.

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Other reports by MaliBehiribAe

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