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NYMEX Crude $ 51.96 DN $2.0300
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NEWS
Oil futures on Monday settled at their lowest level since mid-December as a 10th straight weekly rise in the number of active U.S. oil rigs hinted at further gains in crude production.

“Concerns about the impact of rebounding U.S. oil production are likely to limit oil’s ability to rise too quickly, even as the global supply/demand balance tightens,” said Robbie Fraser, commodity analyst at Schneider Electric, in a note Monday. “As such, the U.S., along with [the Organization of the Petroleum Exporting Countries’] exempt members Libya and Nigeria, will be the most important countries to watch over the next six months in terms of potential production upside.”

February West Texas Intermediate crude lost $2.03, or 3.8%, to settle at $51.96 a barrel on the New York Mercantile Exchange. Prices touched new session lows minutes before Monday’s settlement to mark their lowest finish since Dec. 16, according to FactSet data. Last week, prices logged a fourth consecutive weekly climb. March Brent crude on London’s ICE Futures exchange fell $2.16, or 3.8%, to $54.94 a barrel, a two-and-a-half-week settlement low.

The oil market has seen “a lot of day-to-day swings based on sentiment,” supported by the OPEC cut and global demand growth expectations, but also pressured by an expected rebound in U.S. shale oil production, some lower global demand forecasts and strength in the U.S. dollar, said Brian Youngberg, senior energy analyst at Edward Jones.

Weakness Monday, however, is “more tied to the continuing rig-count growth,” he said. Houston-based oil-field services company Baker Hughes Inc. reported Friday that the number of active rigs drilling for oil in the U.S. rose by four last week. The series of consecutive weekly rises has left the U.S. with a total of 529 active domestic oil rigs—the highest since December 2015.

Dominick Chirichella, an analyst from the New York-based Energy Management Institute, said the elevated rig count was starting to alarm some observers and was a probable consequence of the recent oil-price rally. To put the figures into perspective, U.S. oil production was 9.225 million barrels a day in December 2015 compared with current levels of 8.77 million barrels a day as reported last week by the Energy Information Administration.

Higher oil production from the U.S. is an expected byproduct of higher oil prices caused by OPEC’s decision on Nov. 30 last year to trim output to 32.5 million barrels a day. The output cut agreement wasn’t implemented until the start of 2017, so monthly oil reports released by the EIA on Tuesday and by OPEC on Jan. 18 and the International Energy Agency on Jan. 19 aren’t likely to provide much information for traders.

On Monday, Reuters reported that Russia cut its oil production in early January by about 100,000 barrels a day from the previous month, citing sources in the energy sector. Meanwhile, Kuwait’s OPEC Governor Nawal Al-Fezaia told Bloomberg in an interview that Qatar, Kuwait and Oman, among others have been complying with the promised output cuts. “Besides the level of the actual OPEC/non-OPEC cut relative to the agreement, the other big question is the response from U.S. shale as 2017 unfolds,” said Youngberg. “It will at least partially offset the cuts, but how much and when is open to debate.”

Meanwhile, prices Monday were unfazed by news that the U.S. Energy Department plans to sell up to 8 million barrels of sweet, crude oil from the Strategic Petroleum Reserve this month. The news didn’t come as a surprise and “this really isn’t a significant amount of supply coming into the market,” Jenna Delaney, oil analyst with Platts Analytics, the forecasting and analytics unit of S&P Global Platts, told MarketWatch.

She said the market expects the Energy Department to conduct a number of sales over the next few years following a “test” release from the SPR back in 2014, which was made to help it assess the need for any updates to the infrastructure of the reserve, which currently holds 695.1 million barrels of crude oil.

Back on Nymex, energy futures ended broadly lower, with natural-gas prices leading the way. February natural gas dropped 18.2 cents, or 5.5%, to $3.103 per million British thermal units, after losing nearly 12% last week. The settlement level was the lowest since late November. February gasoline declined by 6.3 cents, or 3.9%, to $1.571 a gallon, while February heating oil finished at $1.638 a gallon, down 6.6 cents, or 3.9%.