Oil prices slide as US rig count rises, economy concerns

Oil prices were slightly lower on Friday, but held around $50 a barrel in choppy trading. Anadarko photo.

By Devika Krishna Kumar

By Devika Krishna Kumar

NEW YORK, June 3 (Reuters) – Oil prices tumbled more than 1 percent on Friday, extending losses after weekly industry data showed U.S. drillers added rigs for only the second time this year.

Drillers added nine oil rigs in the week to June 3, Baker Hughes said. The closely followed report rekindled fears that U.S. shale drillers would turn the spigots back on as prices flirted with $50 a barrel. <RIG-OL-USA-BHI>

Prices had already dipped in early trade on worries about the U.S. economy, but losses were limited by a weakening dollar, which makes oil less expensive for buyers using other currencies.

“The increase in the rig count as prices near the $50/bbl range is clearly indicative of the elasticity of U.S. production and speaks to the tremendous efficiency gains reaped by the U.S. producer community over recent years,” said Michael Tran, director of energy strategy at RBC Capital Markets in New York.

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Oil traders view falling U.S. output as key to reducing a global glut of crude that has pressured prices during a steep two-year slump.

Brent crude futures ended the session down 40 cents at $49.64 per barrel. Brent’s price remained almost double January lows, notching its eighth weekly gain in nine weeks.

U.S. West Texas Intermediate (WTI) crude futures settled down 55 cents at $48.62. For the week, prices fell 1.1 percent, its first weekly decline in four weeks.

Oil prices have rallied from the winter’s lows due largely to supply disruptions, particularly in Nigeria, Venezuela, Libya and Canada. On Friday, militants in the restive Niger Delta region that produces more than half of Nigeria’s oil claimed three new attacks on oil infrastructure, promising to bring the country’s oil production to “zero.”

Still, news that ExxonMobil lifted its force majeure, or suspension of deliveries on exports of Nigeria’s Qua Iboe crude oil because of events beyond its control, looked likely to bring barrels back to the market.

“If you’re starting to see some of those barrels coming back, well, that’s happening ahead of schedule, in my opinion,” Bob Yawger, director of the futures division at Mizuho in New York.

The tone of the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna on Thursday supported prices “from the perspective that none of the major players (except Iran) indicated that they would be further flooding the market with oil anytime soon,” said Energy Management Institute analyst Dominick Chirichella.

Weaker-than-expected U.S. non-farm payroll data supported oil by sending the dollar index to its lowest since mid-May.

However, the weak data also pressured oil prices by raising concerns about U.S. gasoline demand this summer, Yawger said.

(Additional reporting by Libby George in London and Henning Gloystein in Singapore; Editing by David Gregorio and Richard Chang)