Oil Prices Fall After U.S. Rig Count Rises

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Crude prices edged down Monday as the market weighed an increase in the number of rigs drilling for oil in the U.S.

Brent crude, the global benchmark, was down 0.51% at $70.16 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.03% at $66.12 a barrel.

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The U.S. oil-rig count rose by 12 in the week ended Jan. 19, bringing the total to 759, the highest since August, according to a weekly report released Friday by oil-field services firm Baker Hughes Inc. The rig count is generally viewed as a proxy for activity in the sector.

"There is a strong pick up in rigs, particularly in the Permian region, indicating somewhat of a cap on oil prices," said Giovanni Staunovo, commodity analyst at UBS Wealth Management, of the ramp up of shale oil drilling in the U.S.

Oil prices have hit three-year highs this month on the back of strong demand, geopolitical risks, a weaker U.S. dollar and efforts by the Organization of the Petroleum Exporting Countries to curb supply. But the higher prices have motivated U.S. shale producers to increase production, a move analysts say could limit further gains in oil prices.

"The improving price backdrop will spur additional output from U.S. shale producers," according to Stephen Brennock, an analyst at brokerage PVM Oil Associates Ltd. "This has been the long-running thorn in the side of OPEC and its goal of normalizing global oil stocks," Mr. Brennock wrote in a note Monday.

OPEC and 10 producers outside the cartel, including Russia, agreed at the end of last year to extend an agreement to hold back crude output by 1.8 million barrels a day through the end of this year. The accord, first struck in late 2016, was meant to rein in a global supply glut that has weighed on prices for over three years and bring global inventories back down to the last five-year average.

U.S. crude inventories have fallen for 10 straight weeks, according to data released last week by the U.S. Energy Information Administration. But crude output rose by 128,000 barrels a day to 9.878 million barrels a day in the week ended Jan 19, according to the EIA.

Oil market observers will be looking ahead to the EIA's weekly report this coming Wednesday.

Among refined products, Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- was mainly flat, at $1.92 a gallon. ICE gas oil, a benchmark for diesel fuel, changed hands at $627.75 a metric ton, down 0.20% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

Crude prices fell Monday, weighed down by an increase in the number of rigs drilling for oil in the U.S. and a stronger dollar.

Light, sweet crude for March delivery declined 58 cents, or 0.9%, to $65.56 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.06, or 1.5%, to $69.46 a barrel.

The U.S. oil-rig count rose by 12 in the week ended Jan. 19, bringing the total to 759, the highest since August, according to a weekly report released Friday by oil-field services firm Baker Hughes Inc. The rig count is generally viewed as a proxy for activity in the sector.

"There is a strong pick up in rigs, particularly in the Permian region, indicating somewhat of a cap on oil prices," said Giovanni Staunovo, commodity analyst at UBS Wealth Management, of the ramp up of shale oil drilling in the U.S.

In the past week, crude has also been strongly influenced by the U.S. dollar, as it fell to three-year lows and then recovered. On Monday, the WSJ Dollar Index, which gauges the dollar against 16 other currencies, rose 0.6% to 83.54.

"The dollar has been hitting multi-year lows as Nafta negotiations spark trade concerns," said analysts at TAC Energy. "Given the rise in energy exports from the U.S. in the past few years, the Nafta negotiations have different consequences than they have in the past."

Oil prices have hit three-year highs this month on the back of strong demand, geopolitical risks, a weaker U.S. dollar and efforts by the Organization of the Petroleum Exporting Countries to curb supply. But the higher prices have motivated U.S. shale producers to increase production, a move analysts say could limit further gains in oil prices.

"The improving price backdrop will spur additional output from U.S. shale producers," according to Stephen Brennock, an analyst at brokerage PVM Oil Associates Ltd.

"This has been the long-running thorn in the side of OPEC and its goal of normalizing global oil stocks," Mr. Brennock wrote in a note Monday.

OPEC and 10 producers outside the cartel, including Russia, agreed at the end of last year to extend an agreement to hold back crude output by 1.8 million barrels a day through the end of this year. The accord, first struck in late 2016, was meant to rein in a global supply glut that has weighed on prices for over three years and bring global inventories back down to the last five-year average.

U.S. crude inventories have fallen for 10 straight weeks, according to data released last week by the U.S. Energy Information Administration. But crude output rose by 128,000 barrels a day to 9.878 million barrels a day in the week ended Jan 19, according to the EIA.

Oil market observers will be looking ahead to the EIA's weekly report this coming Wednesday.

Gasoline futures fell 0.1% to $1.9349 a gallon and diesel futures lost 1.5% to $2.1048 a gallon.

Stephanie Yang contributed to this article

Write to Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

January 29, 2018 16:15 ET (21:15 GMT)

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