Oil down 3 percent as U.S. drillers add rigs, strong dollar weighs

Oil prices settled down 3 percent on Friday after data showing the U.S. oil drilling rig count rising for a second week in row and a stronger dollar weighed on demand for greenback-denominated crude futures.

A slide of more than 1 percent in Wall Street share prices .SPX, the largest since April, also prompted pre-weekend profit-taking in Brent and U.S. crude futures, which had rallied earlier in the week. [.N]

The dollar .DXY jumped its most in nearly two months, rising 0.7 percent, as jittery global financial markets sent investors towards safe haven currencies. [USD/]

Brent’s front-month LCOc1 settled down $1.41 at $50.54 a barrel, losing 2.7 percent for its largest drop in a month.

The front-month in U.S. crude’s West Texas Intermediate (WTI) futures CLc1 fell $1.49 to $49.07, down 3 percent, marking the largest slide since early April.

Still for the week, Brent rose nearly 2 percent and WTI about 1 percent, helped by gains in the first three sessions that boosted the North Sea benchmark to an eight-month peak and the U.S. benchmark to July highs.

Crude futures are also about 90 percent higher from 13-year lows hit during the winter, lifted by supply disruptions from Nigeria, Canada, Libya and Venezuela that combined with lower U.S. production. Worries about a global crude glut drove prices down from above $100 a barrel to below $30 between mid-2014 and the first quarter of 2016.

U.S. oil drillers added three oil rigs in the week to June 10, after a nine-rig rise in the previous week, oil services firm Baker Hughes said in its weekly survey of the rig count. [RIG/U]

“This looks like the beginning of a trend that will translate to the slowing down of U.S. crude production declines,” said Tariq Zahir, who trades WTI futures spreads for Tyche Capital Advisors in New York. “I’m adding to my short positions in spreads.”

But some market sources said unless the rig count climbed exponentially in the coming weeks, the market was likely to shrug off the data.

Before this week, oil rigs fell on average by 10 per week this year. Last year, they slumped by an average of 18 a week as low crude prices made it uneconomical to drill.

“The 10-15 rig rise we’ve had so far won’t change anything significantly on supply. At this point, it’s hard to get to excited about an uptick in production coming this year,” said Scott Shelton, energy broker with ICAP in Durham, North Carolina.

Source: Reuters