Oil futures set off on a positive start Monday as the first decline in US oil-drilling activity since January after the market a fresh tailwind after seven-consecutive sessions of price gains.
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The drop in Baker Hughes' weekly count, coming after a record 23-straight weeks of rising numbers of active rigs, helped stoke sentiment that shale producers may have hit a bottleneck amid prolonged low prices.
"The decline signals that U.S. oil supply struggles to remain profitable between $40 and $45 a barrel," said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in August recently traded up 0.4% at $46.20 a barrel in the Globex electronic session. September Brent crude on London's ICE Futures exchange rose 0.2% to $48.85.
Crude on Friday logged its first seven-session winning streak since August, capping gains of 7% last week for the U.S. oil benchmark and 5.2% for Brent. Oil has been gaining traction as crude production and inventories showed signs of slowing as the second half of June arrived. A deceleration in U.S. output is something many oil producers and investors betting on higher prices have been longing for.
Despite last week's bounce, oil futures have fallen about 15% this year.
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Some say U.S. production may slow further as drilling costs are expected to rise, eroding margins and returns.
"At present, declining costs for drilling, water handling and well design are offsetting inflation on the pressure-pumping, proppant and steel side," said Energy Aspects. "However, come 2018 the impact of cost inflation is likely to rear its head."
Growth in U.S. production has been hampering efforts led by the Organization of the Petroleum Exporting Countries to reduce global oil inventories.
But some say last week's data are hardly compelling as activity was impacted by bad weather.
"The bulls will hype up the data for sure, but the market fundamental hasn't changed," said Gao Jian, an energy analyst at SCI International. The market "is still very oversupplied."
He also noted Libya's daily production, which has reportedly gotten to around 1 million barrels, a level not seen in four years.
Traders and investors are also eyeing the ongoing fracas between Qatar and fellow Arab States. On Monday, the Saudi press agency says the kingdom-led bloc has given Qatar two more days--until Wednesday--to comply to the group's demands. Qatar remains defiant that it isn't aiding Iran-based terrorism movements, as alleged by the bloc.
Even though the quarrel will likely remain on verbal and political levels, an escalation of tensions could yet jeopardize the OPEC deal, said Stuart Ive at OM Financial.
Refined products were mixed. August Nymex reformulated gasoline blendstock was recently down 0.2% at $1.5111 a gallon, while diesel rose 0.2% to $1.4865. July ICE gasoil gained 1.2% to $441.75 a metric ton.
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(END) Dow Jones Newswires
July 02, 2017 23:50 ET (03:50 GMT)