Crude fell a third day after the number of rigs drilling for oil in the US rose for a second week.
Futures fell as much as 1.8 per cent in New York after dropping 4.2 per cent in the previous two sessions. Rigs targeting crude in the US rose by three to 328 last week, capping the longest run of weekly gains since August, Baker Hughes said on Friday. Iran is seeking to boost output by 600,000 to 700,000 barrels a day over five years from fields in an area west of the Karoun River along the Iraqi border, oil minister Bijan Namdar Zanganeh said.
Oil has surged about 85 per cent from a 12-year low in February as the global glut is trimmed by disruptions and a slide in US output, which is under pressure from Opec policy of pumping without limits. New York crude closed above $51 a barrel on Wednesday at the highest level in more than 10 months.
“The increase in rigs means US production may increase in the latter half of 2016, and that creates a bearish mentality in the market,” said Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp, a state-run company that helps secure energy supplies. “With oil over $50 a barrel, there is a deep-rooted view that American shale producers may return.”
West Texas Intermediate for July delivery fell as much 86 cents to $48.21 a barrel on the New York Mercantile Exchange and was at $48.57 at 8.10am London time. Total volume traded was 19 per cent above the 100-day average. The contract slipped $1.49 to settle at $49.07 on Friday.
Brent for August settlement dropped as much as 74 cents to $49.80 on the London-based ICE Futures Europe exchange. Prices decreased $1.41 to close at $50.54 on Friday. The global benchmark crude was trading at a 93-cent premium to WTI for August.
While the number of active oil rigs in the US rose for a second week the nation’s output is still well below last year’s peak, and explorers have idled more than 1,000 drilling machines since the start of last year. The $50-to-$60 a barrel area is the “sweet spot” as more US producers are expected to return at $60, according to Mark Watkins, Utah-based regional investment manager for The Private Client Group of US Bank.
Iran, the second-biggest producer within Opec before sanctions were intensified in 2012, will sign its first contract with a foreign company within three months, Seda Weekly magazine reported, citing an interview with oil minister Zanganeh. The Gulf nation has lifted oil output to a four-year high of 3.8 million barrels a day since sanctions eased in January.
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