Oil price optimism fades as Texas drills on

Bloomberg

The relentless drilling ramp-up in America’s top shale plays is making investors more skeptical that an oil price rebound is on the horizon.
After increasing their bets on rising West Texas Intermediate crude for three straight weeks, money managers slashed the wagers by 21 percent, according to US Commodity Futures Trading Commission data. Producers in Texas are leading the longest shale revival since 2011, making OPEC-led efforts to rebalance the market increasingly difficult.
After the year started on a bullish note, with prices in New York topping $55 a barrel as Saudi Arabia, Russia and other major exporters began to cut production, the rally has staggered. Saudi Arabia’s Energy Minister Khalid Al-Falih has admitted the first three months of supply curbs failed to bring inventories below the five-year average. As optimists lose heart, prices fell back below $50 last month.
There’s still a lot of talk about high inventory levels, Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. Investors felt that prices had “gone up too much compared to the fundamentals. The shale oil production trend is definitely bullish, which is bearish for prices.”
This month’s production in the top US shale plays will reach about 5.2 million barrels a day, the highest level since November 2015, according to the Energy Information Administration. As producers pour billions of dollars of investment into fields like the Permian and Eagle Ford in Texas, the country’s oil-rig count has more than doubled in a year to 697 last week, according to Baker Hughes Inc.

DEAL EXTENSION
Meanwhile, major exporters reached an initial agreement to extend output cuts, Al-Falih said April 20. Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said last week that all producers are steadfast in their commitment to pare production, and Russia’s Energy Minister Alexander Novak said the country will reach its fully agreed 300,000 barrel a day cut as promised.
As questions remain if the exporters will eventually succeed, hedge funds decreased their net-long position, or the difference between bets on a price increase and wagers on a decline, to 255,421 futures and options in the week through April 25, the CFTC data show. That’s down almost 40 percent from a record in February. Longs fell 13 percent, while shorts jumped 26 percent.
WTI slid 5.4 percent during the report week, falling below two technical barriers — the 50-day and 100-day moving averages. Futures lost 0.2 percent to $49.22 a barrel at 12:04 p.m. Singapore time on Monday.
The drop below $50 is “enough for the casual technician to take some money
off the table if you’re long,” Bill O’Grady, chief market strategist at Confluence
Investment Management in St. Louis, said by telephone.
Investors had been expecting prices to rise to $55 or $60 a barrel in light of the OPEC deal and prices never reached that level, Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said by telephone. “You started the year with longs. They’re giving up on the trade to a certain point.”
Meanwhile, oil declined as rigs targeting crude in the US rose for a fifteenth week and output from Libya rebounded. Futures in New York lost as much as 0.5 percent after gaining 0.7 percent. The number of oil rigs operating in US fields advanced to the most since April 2015, according to Baker Hughes Inc. Libya’s crude production rebounded to more than 700,000 barrels a day as the OPEC member’s biggest oil field and another deposit in its western region resumed pumping after a halt.
Oil has fallen the past two weeks amid concern growing US output will offset efforts by the Organization of Petroleum Exporting Countries and its allies to trim a global glut. American production increased to the most since August 2015 and Saudi Arabia’s Energy Minister Khalid Al-Falih has acknowledged that the first quarter of OPEC-led curbs failed to bring stockpiles below the five-year average.
“The rising US rig count will continue to keep a lid on prices until we see inventories come down,” said Gary Burton, a Melbourne-based analyst with IG Ltd. “The price has flat-lined around this $49 mark and there’s little volatility to drive the price from there.”
West Texas Intermediate for June delivery lost as much as 26 cents to $49.07 a barrel on the New York Mercantile Exchange, and traded at $49.08 at 11:10 a.m. in Dubai. Total volume traded was about 54 percent below the 100-day average. The contract on increased 36 cents to $49.33. Brent for July settlement lost as much as 31 cents, or 0.6 percent, to $51.74 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.39 to July WTI. Brent for June delivery expired after adding 29 cents to $51.73.
US producers boosted the number of rigs drilling for oil by 9 to 697 machines, according to a report from Baker Hughes. Libya’s Sharara field is currently producing 216,400 barrels a day, while the El Feel, or Elephant, deposit is pumping 26,500 and is expected to boost output further, Jadalla Alaokali, a board member at the National Oil Corp., said.
After increasing their bets on rising West Texas Intermediate crude for three straight weeks, money managers slashed the wagers by 21 percent, according to US Commodity Futures Trading Commission data. South Korea’s crude imports fell 7.9 percent to 82.6 million barrels in April from a year earlier, according to the country’s Ministry of Trade, Industry and Energy.