Oil prices jump on possible US shale slowdown

Oil prices up over 3 per cent

Oil prices rose 3.3 per cent on Tuesday to the highest close in over a month one day after Anadarko reported it will cut capital spending plans and Saudi Arabia pledged to cut its exports to help tackle to global crude glut.

Brent crude futures rose $1.60 to settle at $50.20/barrel, the first time over the $50 mark for the benchmark since June 6.  US WTI closed up $1.55, ending the day at $47.89/barrel.

Mark Watkins, regional investment manager with US Bank told Reuters that lower oil prices in June and July have impacted US shale production.

“Companies are not drilling as fast they had been in the beginning of 2017,” he said, “They’re not producing as much because it’s much less profitable with prices in the low $40s.”

Anadarko posted a larger-than-expected quarterly loss on Monday and said it will cut its 2017 capital budget by $300 million due to low oil prices.  The major independent oil company was the first large US producer to take such action.

Halliburton’s executive chairman said he believes the North American rig count was plateauing.

“In the U.S. investors have been waiting to see where that top is in oil production,” Watkins said, “We’ve hit a tension point.”

Also boosting oil prices was an announcement by Saudi Arabia’s Energy Minister Khalid al-Falih saying the kingdom would reduce crude exports to 6.6 million barrels per day (b/d) in August, down almost 1 million b/d from a year earlier.

Falih was speaking at a meeting in St Petersburg on Monday involving OPEC and non-OPEC producers participating in the cartel’s supply pact.  At the meeting, Nigeria agreed to limit its output at 1.8 million b/d once it stabilizes at that level.

OPEC data shows global crude stocks have dropped by 90 million barrels in the first half of 2017, but remain at 250 million barrels over the five-year average, which is the OPEC supply cut goal.

Later on Tuesday, the American Petroleum Institute will release its data on US crude stocks and on Wednesday, the US Energy Information Administration will report its data on oil inventories.

Currently, analysts are anticipating a drop in crude stocks by 3 million barrels last week.

“The general consensus around the campfire is that you’re going to get sizeable draws in crude and gasoline,” Robert Yawger, director of energy futures at Mizuho Americas told Reuters.

Should oil prices increase, it could be a “double edged sword”, according to a note from Commerzbank.

“U.S. shale oil companies… would immediately take advantage of the higher price for hedging purposes and would step up their production again in the medium term.”