By Georgi Kantchev
LONDON--Oil prices slid on Friday on concerns over the resilient
U.S. crude production and a deal between Iran and the West that
could unlock millions of barrels of crude on to the oversupplied
world market.
The number of U.S. oil-drilling rigs rose by 12 to 640 in the
past week, snapping 29 straight weeks of decline, data from Baker
Hughes showed late on Thursday. The rig-count, which some investors
see as a proxy for activity in the oil industry, has fallen sharply
since oil prices headed south last year. U.S. oil output, however,
has remained strong and continued to pressure oil prices.
Brent crude, the global oil benchmark, fell 1.2% to $61.35 a
barrel on London's ICE Futures exchange. In a shortened trading
session because of the U.S. Independence Day holiday, U.S. crude
futures were trading down 1.1% at $56.31 a barrel on the New York
Mercantile Exchange.
"The pickup in activity might be illustrative of the
competitiveness of the U.S. shale industry which, thanks to cutting
costs, might have become comfortable with producing oil at prices
around $60 per barrel," said Norbert Ruecker, head of commodities
research at Julius Baer.
"The U.S. shale industry has become the oil market's swing
producer and its responsiveness to prices will shape the market for
the years to come, paving the way for lower prices for longer," he
said.
Though this is the first increase since 2014, there are still
about 60% fewer rigs working since a peak of 1,609 in October.
"One swallow doesn't make a summer," said analysts at
Commerzbank. But the bank noted if other new oil rigs were to be
added in the coming weeks, that would cast doubt over the expected
decline in U.S. shale oil production.
"Yet precisely such a decrease is necessary so that the
oversupply on the global oil market can be reduced and oil prices
can further recover, " Commerzbank said.
According to analysts at Deutsche Bank, U.S. shale oil
production will decline over coming months, likely into early 2016.
However, it said that the decline would prove relatively shallow,
owing to the continued benefits of productivity gains.
That would leave the oil market materially oversupplied in the
first half of next year, by an average of 2.3 million barrels a
day. Currently, the market is oversupplied by between 1.5 million
and 2 million barrels a day, according to analysts' estimates.
Meanwhile, the Iran nuclear talks continue to drag on, but
Western officials are eager to reach a deal by Tuesday, after a
one-week extension to the previous deadline.
On Friday, the head of the International Atomic Energy Agency
said that Iran and the IAEA have worked out "some ways forward" to
deal with questions about Tehran's past nuclear activities.
A final agreement to curb Iran's nuclear program is expected to
pave the way for the lifting of Western sanctions and release more
Iranian crude on the oversupplied global market.
"Although oil is unlikely to flow at substantial volumes before
2016, Iran remains a long-term bearish factor for the market," Mr.
Ruecker said.
Investors are also tracking the latest twists and turns in the
Greek debt crisis. This weekend's referendum on the conditions
required by the country's creditors for more funding, is likely to
dominate market sentiment next week.
Nymex reformulated gasoline blendstock for August--the benchmark
gasoline contract--fell 0.6% to $2.0221 a gallon, while ICE gas oil
for July changed hands at $562.75 a metric ton, down $11.50 from
Thursday's settlement.
Laurence Norman contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
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