Oil holds near $54, as U.S. boosts rig count to most since 2015

Heesu Lee February 27, 2017

SEOUL, South Korea (Bloomberg) -- Oil traded near $54/bbl after the U.S. boosted drilling rigs to the most since October 2015, keeping prices in a tight range amid speculation the country’s output may rise and counteract OPEC production cuts.

Futures in New York gained 0.7% after losing 0.8% Friday, retreating from the highest close in 19 months. U.S. explorers raised the rig count by five to 602 last week, according to Baker Hughes Inc. data. The United Arab Emirates is working to ensure total compliance with the Organization of Petroleum Exporting Countries-led output deal, Al Bayan newspaper reported Saturday, citing the country’s OPEC governor.

While U.S. inventory gains, which have kept prices in a tight range above $50 this year, have begun to slow, Citigroup Inc. sees OPEC needing to extend cuts beyond the planned six-month duration to trim the global glut it created by boosting output prior to the deal. Production from the world’s largest consumer rose above 9 MMbpd to the highest since April, the government reported last week.

“U.S. shale producers won’t reduce output at this point,” said Will Yun, a commodities analyst at Hyundai Futures Corp. in Seoul. “As long as U.S. shale output rises, it will be a major challenge going forward for OPEC members as it will continuously drag down prices.”

West Texas Intermediate for April delivery was at $54.34/bbl, up 35 cents, on the New York Mercantile Exchange as of 7:26 a.m. in London. Total volume traded was about 33% below the 100-day average. Prices lost 46 cents to $53.99 on Friday.

U.S. rigs

Brent for April settlement added 42 cents to $56.41/bbl on the London-based ICE Futures Europe exchange. The contract lost 59 cents, or 1%, to $55.99 on Friday. The global benchmark traded at a $2.07 premium to WTI.

Rigs targeting crude in the U.S. increased by 77 this year, and producers have added 286 units since bottoming out in May. American oil production is near the highest level since April, and the nationwide stockpiles have expanded by about 40 MMbbl since the start of 2016, according to government data.