Oil falls most in 10 weeks as U.S. rig count gains, dollar rises

NEW YORK (Bloomberg) -- Crude fell the most in 10 weeks as the number of rigs drilling for oil in the U.S. climbed and the U.S. dollar strengthened against its peers.

 

Futures tumbled 3% in New York. Rigs targeting crude in the U.S. rose by 3 to 328 this week, capping the first two-week gain since August, Baker Hughes Inc. said Friday. The dollar rose, making commodities denominated in the currency less attractive as an investment. Prices climbed earlier this week as U.S. crude stockpiles declined and disruptions cut Canadian and Nigerian supply.

 

Tim Evans, an energy analyst at Citi Futures Perspective in New York, said even though the "market is so intensely focused on the rig count now," the two-week gain won’t have much effect on actual supply in the near-term.

 

"The uptick can at most be considered an inflection point where the rig-count decline stopped. It will take at least six months before it will be reflected in supply," he said.

 

Oil has surged about 90% from a 12-year low in February as the global glut is trimmed by disruptions and a slide in U.S. output, which is under pressure from the Organization of Petroleum Exporting Countries’ policy of pumping without limits.

 

West Texas Intermediate for July delivery slipped $1.49 to settle at $49.07/bbl on the New York Mercantile Exchange, the biggest decline since April 4. Futures rose 0.9% this week. Total volume traded was 6.8% below the 100-day average.

 

Commodity Decline

 

Brent for August settlement dropped $1.41, or 2.7%, to $50.54/bbl on the London-based ICE Futures Europe exchange. The North Sea crude, used as a global benchmark, climbed 1.8% this week. Brent closed at an 82-cent premium to WTI for August delivery.

 

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose as much as 0.8% after rallying 0.4% on Thursday. The Bloomberg Commodity Index looked set for a second day of losses Friday.

 

Global stocks headed for the biggest drop in two months and bond yields slid to record lows as investors braced for next week’s Federal Reserve meeting and Britain’s referendum on European Union membership later this month.

 

"Ninety percent of the world’s oil is dollar-denominated," so any change in dollar value will "feed through pretty directly," Paul Sankey, an energy analyst at Wolfe Research LLC, said on Bloomberg Radio. "We are expecting Canadian production to come back soon."

 

Alberta Wildfires

 

Fires in Canada’s oil-sands region are expected to disrupt supplies by an average of 400,000 bpd this month, after peaking at more than 1.1 MMbpd of lost production in May, according to the U.S. Energy Information Administration. Cenovus Energy Inc. is in the process of restarting production at the Pelican Lake oil field after shutting operations on Wednesday. 

 

Oil producers in Nigeria are facing a renewed wave of violence in the delta region that accounts for most of the country’s crude. The country’s output dropped to the lowest in almost three decades as armed groups intensified attacks to rupture pipelines in recent months.

 

U.S. crude stockpiles fell 3.23 MMbbl to 532.5 MMbbl last week, the lowest since April 1, data from the EIA showed.