Oil prices under pressure after Brent dips briefly below $50

U.S. rig count rise may be sign of reopenings. Oil prices kicked off the week in the red after U.S. drilling data showed another increase, reinforcing views that the recent price rally may restrain the nascent rebalancing of the oversupplied market by motivating producers to restart closed wells.

Brent , the international oil benchmark, briefly fell below $50 a barrel for the first time in a week. It was recently down 0.7% to $50.18 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 1% at $48.59 a barrel.

Oil prices are up by more than 80% from multiyear lows earlier this year, thanks to unplanned production outages from Nigeria to Canada and falling output in the U.S. However, some market participants say the rally could encourage producers to ramp up production, keeping well-supplied markets awash in surplus.

Baker Hughes Inc. said late Friday the number of rigs drilling for oil in the U.S. rose by three in the week ended June 10, the second straight weekly increase (http://www.marketwatch.com/story/crude-futures-maintain-losses-after-rig-count-report-shows-2nd-weekly-gain-2016-06-10).

“Now it seems like the recent oil price increase could be convincing oil drillers to reopen rigs,” said Michael Poulsen, oil analyst at Global Risk Management. Still, despite the recent increase, the number of U.S. oil rigs in operation is 48% lower than it was a year earlier.

“While this in itself is only a small change and will have little immediate effect on production, the time lag between a rise in prices and addition of rigs speaks in favor of this trend continuing for at least another two to three months,” said analysts at JBC Energy. “U.S. supply fundamentals [are] thus looking slightly more bearish for prices.” Some analysts say that after the strong rally in the spring, oil prices might also face other headwinds in the second half of the year as demand weakens.

Drilling in the U.S. shows a slight uptick again. Elevation Resources rig supervisor David Crow at the Permian Basin drilling site in Texas. For two straight weeks, the number of active rigs has increased. Elevation Resources rig supervisor David Crow at the Permian Basin drilling site in Texas. For two straight weeks, the number of active rigs has increased.
By : morningstar.com

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