Oil rises on lower U.S. drilling activity, but rising Russia output weighs

4/2/2018

Agencies, Beijing Oil prices rose on Monday, lifted by a drop in drilling activity in the United States as well as by expectations that Washington could re-introduce sanctions against Iran.U.S. WTI crude futures were at $65.20 barrel at 0657 GMT, up 26 cents, or 0.4 percent, from their previous settlement. Brent crude futures were at $69.78 per barrel, up 44 cents, or 0.6 percent. Shanghai September crude futures were at 416.7 yuan ($66.39) per barrel, up 1.1 percent. Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore, said oil markets remained nervous about “whether or not the U.S. administration will scrap or maintain the fragile nuclear deal with Iran”. Innes said prices were also supported by a weekly report that there was a drop in activity of drilling for new oil production in the U.S. Drillers there cut seven oil rigs in the week to March 29, bringing the total count down to 797, General Electric Co’s Baker Hughes energy services firm said in its closely followed report last Thursday. It was the first time in three weeks that the rig-count fell. A surge in drilling since 2016 has pushed up U.S. crude production to 10.43 million barrels per day (bpd), taking it past top exporter Saudi Arabia. Oil prices have generally been supported by supply restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, which started in 2017 in order to rein in oversupply and prop up prices. Despite this, Russian oil output rose in March to 10.97 million bpd in March, up from 10.95 million bpd in February, Energy Ministry data showed on Monday, putting Russia ahead of the U.S. as the world’s biggest crude producer. Output in Iraq, OPEC’s second-biggest producer, has also been above the agreement, at around 5 million bpd in early 2018, versus the 4.4 million bpd stipulated in the deal. The Iraqi cabinet on Sunday approved a plan to raise the nation’s crude oil output capacity to 6.5 million bpd by 2022. Also potentially weighing on markets are the rising trade tensions between the U.S. and China.China slapped tariffs of up to 25 percent on 128 U.S. products including frozen pork, as well as wine and certain fruits and nuts, in response to U.S. duties on imports of aluminium and steel, the country’s finance ministry said on Sunday night. “Investors took their cue from falling U.S drilling counts,” Wang Xiao, head of crude oil research with Guotai Junan Futures said. “But increasing trade friction between China and U.S. is likely to rock global markets and tarnish bullish sentiment in crude oil markets.” Trading volumes on Monday are likely to be low as many countries, especially in Europe, will still be on Easter holiday.

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