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Oil falls as U.S. drills more

Published 12/09/2016, 12:37
© Reuters. The Philadelphia Energy Solutions oil refinery is seen at sunset in front of the Philadelphia skyline
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By Amanda Cooper

LONDON (Reuters) - Oil was on course for its largest two-day fall since late June on Monday, after speculators delivered hefty cuts to their bullish bets last week and U.S. crude drillers added more rigs for a tenth week running.

Brent crude oil futures had fallen $1.06 on the day to $46.95 a barrel by 1125 GMT, bringing the percentage loss for the last two sessions to 6.1 percent, the biggest such decline since the last week in June.

U.S. West Texas Intermediate futures fell $1.05 to $44.83 a barrel.

Traders said the price falls on Monday and Friday were a result of increasing oil drilling activity in the United States, which indicated producers can operate profitably around current levels.

"The idea that we will continue to bounce off the $50 per barrel handle is proving correct," said Matt Stanley, fuel broker, Freight Investor Services (FIS) in Dubai, pointing towards "the dynamic of shale oil" as the main reason to have pulled prices back down.

Oil's near six-percent price decline since Sept. 8 partly reverses a 10-percent rally seen early in the month to around $50 per barrel.

Adding to the pressure on the oil price, the dollar rose against the Australian dollar and most emerging-market currencies, as investors priced in a greater chance of U.S. interest rates rising next week, which forced up bond yields and dented the broader commodities complex. [FRX/]

"From that perspective, we’re getting a bit of a sell-off in oil," CMC Markets strategist Jasper Lawler said.

"Given the good run that oil has had, that was maybe the easy trade to take when the dollar was rallying," he added.

When the dollar strengthens, non-U.S. investors tend to cash in on their dollar-denominated assets, such as crude oil.

This correlation was at its most negative in over a month on Monday, meaning the two are more likely to move inversely to one another than at any time since early August.

OPEC on Monday estimated oil output from its non-cartel rivals would grow more quickly than it originally estimated in 2017, pointing to a larger surplus than previously forecast. [OPEC/M]

A number of key members of the group, including Saudi Arabia, have hinted they may be willing to consider freezing output, although there is no certainty among market players that a deal could materialise any time soon.

© Reuters. The Philadelphia Energy Solutions oil refinery is seen at sunset in front of the Philadelphia skyline

Speculators last week delivered the largest cut to their bets that the price of oil will rise in over a year, and slashed their bullish holdings of gasoil futures by nearly half, data from the InterContinental Exchange showed on Monday.

(Addtional reporting by Henning Gloystein in SINGAPORE and Osamu Tsukimori in TOKYO; Editing by William Hardy and Mark Potter)

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