Crude slid to its lowest in a week in New York after U.S. oil explorers deployed more drilling rigs, signaling that companies may be able to revive output at current prices.
Futures fell as much as 1.8 percent after dropping 4.2 percent the previous two sessions. Rigs targeting crude in the U.S. rose by three to 328 last week, a second weekly gain that’s the longest since August, Baker Hughes Inc. said Friday. Iran is seeking to boost output by 600,000 to 700,000 barrels a day over five years from fields west of the Karoun River along the Iraqi border, Oil Minister Bijan Namdar Zanganeh said.
Oil has surged about 85 percent from a 12-year low in February as the global glut is trimmed by unexpected disruptions and a slide in U.S. output, which is under pressure from the Organization of Petroleum Exporting Countries’ policy of pumping without limits. New York crude closed above $51 a barrel on June 8, the highest in more than 10 months. It subsequently fell the rest of the week.
“The uptick in U.S. rig counts, as well as steady U.S. crude production in the weekly data, suggest to us that $50 crude is a threshold at which U.S. upstream players feel much more comfortable again,” said Julius Walker, senior consultant at JBC Energy in Vienna. “As a result of this and other fundamental signals, we do not expect crude prices to show much upside to current levels in the short term.”
West Texas Intermediate for July delivery fell as much 86 cents to $48.21 a barrel on the New York Mercantile Exchange and was at $48.51 as of 9:59 a.m. London time. Total volume traded was 7.8 percent above the 100-day average. The contract slipped $1.49 to settle at $49.07 on Friday.
Brent for August settlement dropped as much as 74 cents to $49.80 on the London-based ICE Futures Europe exchange, after falling $1.41 to $50.54 on Friday. The global benchmark crude was trading at a 93-cent premium to WTI for August.
While the number of active oil rigs in the U.S. rose for a second week, the nation’s output is still well below last year’s peak, and explorers have idled more than 1,000 drilling machines since the start of last year. The $50-to-$60-a-barrel area is the “sweet spot” as more U.S. producers are expected to return at $60, according to Mark Watkins, Utah-based regional investment manager for the Private Client Group of U.S. Bank.
“There was too much optimism in the market before, which is giving way to an environment of risk-aversion,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “In addition, U.S. oil production is no longer falling, with the rig count up for a second week in a row.”
Iran, the second-biggest producer in OPEC before sanctions were intensified in 2012, will sign its first contract with a foreign company within three months, Seda Weekly magazine reported, citing an interview with Oil Minister Zanganeh. The Persian Gulf nation has raised oil output to a four-year high of 3.8 million barrels a day since trade restrictions were lifted in January.
• Money managers were cautious in the week ended June 7, betting more heavily on a price drop than on further gains, data from the Commodity Futures Trading Commission show.
• Iran plans to boost refining capacity to 3.2 million barrels a day by 2020 from 1.85 million barrels a day, Abbas Kazemi, managing director of National Iranian Oil Refining & Distribution Co., said in an interview.