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Oil's near $62 as US jobs fan optimism, rig drop eases fears

Mar 12 2018 11:37
Tsuyoshi Inajima, Bloomberg

Tokyo - Signs of strength in the US economy and data showing American explorers curtailed drilling activity is helping oil hold gains after its biggest jump in seven months.

Futures in New York were little changed after surging 3.2% on Friday, the most since July 25.

After the US boosted rigs drilling for oil for six straight weeks, American explorers idled four rigs last week, easing fears over surging shale production. Meanwhile, the country’s jobs report topped estimates, increasing confidence in the world’s biggest economy and raising investors’ appetite for risk assets.

The renewed confidence in oil comes as investors increasingly grow concerned that US crude producers may undermine efforts by the Organization of Petroleum Exporting Countries and its allies to curb output. While Friday’s jump helped push prices higher for the week, futures are still below their peak in January, with the market struggling to recoup losses from last month’s broader market slump.

As the rig count fell, “the market is starting to think that US shale oil production may not steadily grow, which is supporting oil prices,” Takayuki Nogami, chief economist at state-backed Japan Oil, Gas & Metals National, said by phone from Tokyo.

“The US economy getting better means oil demand will be stronger.”

West Texas Intermediate for April delivery traded at $61.76 a barrel on the New York Mercantile Exchange, down 28 cents at 7:14 pm in Singapore. The US benchmark gained $1.92 to $62.04 on Friday. Total volume traded was about 34% below the 100-day average.

Brent for May settlement fell 38c to $65.11 a barrel on the London-based ICE Futures Europe exchange. The contract climbed 3% to $65.49 on Friday. The global benchmark traded at a $3.47 premium to May WTI.

American explorers cut the number of rigs drilling for oil by four, the first decline since mid-January, Baker Hughes data showed on Friday. That followed government data showing the US added 313 000 jobs in February, the biggest increase since July 2016 and more than the median estimate of 205 000 new positions.

Still, fears over increasing US production continue to weigh on producers and investors. Iran wants OPEC to work to keep oil prices at about $60 a barrel as an increase toward $70 will encourage shale oil output, Oil Minister Bijan Zanganeh said, the Wall Street Journal reported.

While OPEC nations have shown a high level of compliance with their pledged cuts, US shipments eating into the cartel’s market share in Asia may prompt some nations to boost supplies, said Warren Patterson, a commodities strategist at ING Groep. The fallout could drag down prices to under $60, he said.

The pessimistic view was echoed in money managers’ short-selling position. Hedge funds boosted bets on falling WTI prices by the most this year after American production surged to record levels, according to the US Commodity Futures Trading Commission.

Other oil-market news:

• China Petrochemical, known as Sinopec, aims to stabilise output from the Shengli oilfield at about 23 million tons by 2020, down from 23.9 million tons in 2015, Kong Fanqun, general manager of the company’s biggest oilfield, said in an interview on Sunday.

• Italy’s Eni SpA won a contract with Abu Dhabi National Oil for two offshore oil blocks in the Persian Gulf.

• Saudi Arabian Oil’s listing is unlikely to go ahead this year, the Financial Times reported, citing British officials who were told by their Saudi counterparts.

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commodities  |  markets  |  oil
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