Oil Rises on Signs of Slowing Shale Growth as OPEC+ Output Falls

(Bloomberg) -- Oil climbed to near $56 a barrel on signs of slowing U.S. production growth and as OPEC and its allies deepened output cuts aimed at averting a global glut.

Futures in New York rose as much as 0.9 percent after a 2.5 percent drop on Friday. Working oil rigs in America fell to the least since May, according data from Baker Hughes. OPEC’s output dropped last month, aided by unplanned supply losses in Iran and Venezuela. The group’s key ally, Russia, also made deeper production curbs. Signs of progress toward a resolution to the U.S.-China trade war brightened the outlook for demand.

Oil’s rallied about 23 percent this year as the Organization of the Petroleum Exporting Countries and allies started to cut production while American sanctions on Venezuela and Iran restricted supplies further. Beijing and Washington are said to be close to an agreement on lifting most or all U.S. tariffs on Chinese goods, a pact that may ease tensions between the world’s two largest economies.

“There continues to be very strong support for oil prices on the back of OPEC reducing their production,” said Howie Lee, a Singapore-based economist at Oversea-Chinese Banking Corp. “Also, if the U.S. and China manage to resolve their key differences, then we can raise the oil demand a few notches. I think there is hope.”

West Texas Intermediate for April delivery rose as much as 50 cents to $56.30 a barrel on the New York Mercantile Exchange and traded 10 cents higher at $55.90 at 3:25 p.m. in Singapore. Prices last week had ended lower following weaker-than-expected reports on U.S. factory orders and consumer sentiment.

Brent for May settlement was at $65.24 a barrel, up 17 cents, on the London-based ICE Futures Europe exchange. The global benchmark crude’s premium over WTI for the same month narrowed to $8.91.

The drop in American rigs, by 10 to 843 last week, came as explorers were chastened by a near 40 percent collapse in prices late last year. In the Permian, the nation’s largest shale play, rigs fell by 7 to 466, also the lowest since May. Nabors Industries Ltd., the world’s largest owner of land drilling rigs, said customers accounting for more than a third of the machines deployed across the contiguous U.S. plan to trim activity by about 3 percent this year.

OPEC’s production slumped as key cartel members Saudi Arabia, Kuwait and the United Arab Emirates delivered all -- and in some cases more -- of cuts they had pledged to make under a deal between the group and its allies. Russia produced the equivalent of 11.336 million barrels a day last month, down 82,000 barrels per day from the October baseline of the producer alliance known as OPEC+, Bloomberg calculations show.

Meanwhile, signs of the trade negotiations making headway may reinvigorate a rally that snapped last week after two straight months of gains. Substantial progress has been made, a spokesman for China’s National People’s Congress said before legislative meetings this week. People familiar with the discussions earlier said a deal is likely as long as Beijing sticks to pledges ranging from protecting intellectual-property to buying U.S. products.

©2019 Bloomberg L.P.