News

U.S. Drilling Slumps to Five-Year Low

Source: Bloomberg Business

October 4th 2015

Oil rose for a second day after the number of rigs drilling in the U.S. slumped to a five-year low, continuing a slowdown in crude production that promises to reduce a global glut.

West Texas Intermediate futures climbed as much as 3.1 percent, adding to Friday’s 1.8 percent gain. The number of active rigs fell by 26 to 614 last week, according to data from oilfield-services company Baker Hughes Inc. U.S. crude output was down 514,000 barrels a day from a four-decade high of 9.61 million in June, data from the Energy Information Administration showed Sept. 30.

Even as U.S. crude stockpiles stay about 100 million barrels above the five-year seasonal average and OPEC pumps above its target, oil has held near $45 a barrel for more than four weeks since plunging to a six-year low near $38 in August. When prices stop responding to bad news it’s usually a sign a rebound is around the corner, investor Jim Rogers said last week.

“We had a strong Friday on the rig count and this is a continuation,“ Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone. “Output is already down about 500,000 barrels from its peak and is sure to move lower. Falling production in the States is becoming a major focus.”

WTI for November delivery rose $1.12, or 2.5 percent, to $46.66 a barrel at 12:58 p.m. on the New York Mercantile Exchange. The volume of all futures traded was 16 percent lower than the 100-day average.

Brent for November settlement advanced $1.39, or 2.9 percent, to $49.52 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a $2.86 premium to WTI.

Rig Decline
U.S. oil rigs have fallen for a fifth straight week to a number more than 60 percent lower than a year ago, according to Baker Hughes. Meanwhile, the nation’s production declined by 40,000 barrels a day to 9.1 million through Sept. 25, dropping for a seventh time in eight weeks.

Russia risked confrontation with Turkey after military jets from the two countries -- on opposite sides in the Syrian civil war -- faced off, and the government in Ankara warned it would protect its airspace at any cost. The violations followed Russia’s launching of airstrikes in Syria to bolster its ally, President Bashar al-Assad, further complicating the four-year conflict.

“You are seeing the risk premium come back into the market because of what’s going on in Syria,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone.

Saudi Discounts
Saudi Arabia has responded to the glut by cutting prices. Saudi Arabian Oil Co. trimmed its light, medium and heavy grades to the U.S. by 30 cents a barrel in November, a statement on Sunday showed. It also reduced the official selling price for medium-grade crude to Asia, giving it a discount of $3.20 to the regional benchmark, compared with a $1.30 discount for October. The discount widened by the most since February 2012, according to data compiled by Bloomberg.

“If not for the U.S. rig count we would probably be moving lower on the Saudi headlines,” Yawger said.

Hedge funds trimmed bullish bets on U.S. crude for the first time in six weeks. Speculators reduced their net-long position in WTI by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Money managers cut similar positions in Brent futures by 2.5 percent over the period, ICE data show.