By Timothy Puko
Oil prices fell to new multi-month lows Friday as data showed
U.S. producers put more drilling rigs to work despite a lingering
world-wide glut.
Many analysts and investors have warned for months that crude
production could keep rising even amid massive cutbacks from U.S.
producers. U.S. prices have fallen into bear market territory in
recent weeks as that scenario has started to play out.
Now U.S. producers are putting more rigs to work. Baker Hughes
Inc.'s weekly oil rig count rose by 5 to 664 this week, on top of a
20-rig increase last week. Combined with larger-than-expected
production from the Organization of the Petroleum Exporting
Countries, the move shows how a glut of oil may persist despite the
slide in prices over the past year, analysts said.
"It's just one more thing that adds to that bearish feel to the
market," said John Saucer, vice president of research and analysis
at Mobius Risk Group in Houston. He said oil prices are likely to
test their lows for 2015. Production "has really overwhelmed
demand, even though demand is up."
Money managers have retreated to their weakest bullish stance on
oil in nearly five years, adding twice as many bearish bets as
bullish bets in the week that ended Tuesday, according to data the
Commodity Futures Trading Commission released late on Friday.
News of the added rigs and crude's continued fall overshadowed
signs that U.S. production may have peaked after all. The U.S.
Energy Information Administration released data late Friday
afternoon showing that the country's oil production hit a 44-year
high of nearly 9.7 million barrels a day in March and has declined
to 9.5 million barrels in the two months since. Though the declines
have been small, it is the first proof that production has peaked,
a data point many traders have been seeking desperately.
The U.S. benchmark settled down $1.40, or 2.9%, to $47.12 a
barrel on the New York Mercantile Exchange. Losses accelerated in
the afternoon, especially after the rig-count data was released,
and landed at their lowest settlement since March 20.
Brent, the global benchmark, fell $1.10, or 2.1%, to $52.26 a
barrel on ICE Futures Europe, the lowest settlement since Jan.
29.
The losses put U.S. crude down nearly 21% for July. Brent lost
nearly 18% for the month. Both had their worst month since
December. The U.S. benchmark has finished lower in 21 of the past
27 sessions. Brent has posted losses in 11 out of the last 13
months.
High international supplies have kept prices under pressure and
increased competition among producers who are taking cost-cutting
measures. But few have ventured to cut production, and instead have
targeted higher-producing wells and more efficient drilling
techniques as they all fight to hold on to their customers and sell
more oil, even at lower prices.
Comments by Abdalla Salem el-Badri, secretary-general of OPEC,
on Thursday have done little to reassure the market that the oil
glut will be tackled soon. Mr. el-Badri was in Moscow for talks
with Russia's energy minister, Alexander Novak.
"OPEC shows absolutely no sign of blinking," said David Hufton
of PVM Oil Associates in London. He said the secretary-general
believes an increase in oil demand will support prices and will
absorb any additional oil exports from Iran. "Unfortunately for
OPEC, the data, such as it is, does not support this view," he
added.
The world will be entering 2016 with a record high level of
global stocks, and the average surplus is expected to be around 1.5
million barrels a day, he said.
Traders who move based on charts added to the push lower on
Friday, said Ric Navy, senior vice president for energy futures at
brokerage R.J. O'Brien & Associates LLC. Because oil prices
weren't able to rally off the multi-month lows they set earlier
this week, it convinced many of those traders that a broader
selloff was likely to continue, possibly pushing oil toward $44 a
barrel very quickly, he added. "All the charts point lower," Mr.
Navy said.
Gasoline futures gained 1.31 cents, or 0.7%, to $1.841 a
gallon.
The glut of crude has also spilled over into oil-products,
especially diesel, which fell to a new six-year low on Friday. It
has lost nearly 20% in three months, its worst three-month
performance since the one that ended in January, pushing diesel
futures to their lowest settlement since July 15, 2009.
Diesel futures fell 1.42 cents, or 0.9%, to $1.584 a gallon.
Biman Mukherji and Matthew Cowley contributed to this
article.
Write to Timothy Puko at tim.puko@wsj.com