Fundamental Factors Of The Oil Markets

Crude oil opened the week at 49.51 off its high of the week but well above its 2015 trading range as Asian traders continued to rally driving prices up 51 cents to 49.94. Just days ago, WTI was trading at $43. Brent oil climbed to 53.16 on Monday morning after topping out in the mid $53 price range late last week. U.S. oil explorers idled rigs for a sixth-consecutive week as they grapple with crude near $50 a barrel.

Rigs targeting oil in the U.S. fell by nine to 605, adding to the 61 sidelined in the previous five weeks and extending a five-year low, Baker Hughes Inc. said on its website Friday. Equipment put aside in the Permian Basin in West Texas led the decline.

“We were expecting a lot of the marginal vertical and directional rigs to start coming back out of the market, and that’s exactly what we saw this week,” said Matt Marietta, an analyst at Stephens Inc. in Houston. “Overall this is a trend I think is going to continue into year-end.”

America’s oil drillers have idled more than half the country’s rigs since last October as the world’s largest crude producer’s battle for market share. The crude being pumped out of U.S. shale formations has helped create a global glut that has pushed prices down by more than 50 percent since June 2014.

However, new techniques that increased efficiency have prevented production from falling into a tailspin. U.S. crude output rose by 76,000 barrels a day to 9.2 million last week, the biggest gain in nearly half a year, according to Energy Information Administration data. Production reached a four-decade high of 9.61 million barrels in June. US crude stockpiles rose 3.07 million barrels to 461 million in the week ended Oct. 2, the energy agency said. Supplies were forecast to have gained by 2.25 million barrels last week, according to a Bloomberg survey.

Crude prices swung back and forth in choppy trade on Friday as traders closed positions at the end of a week that saw prices briefly rising by the most in over six years earlier in the session.

Market participant’s flip-flopped between the negative fundamentals of persistent oversupply and support factors from Syria-related concerns and a weaker U.S. dollar.

Last week Brent notched its highest weekly percentage gain since 2009, but some traders said the sharp rise was overblown, prompting speculators to take profits.

The U.S. House of Representatives passed a bill on Friday to overturn the 40-year-old ban on oil exports, but the measure did not get enough support to overturn any veto by President Barack Obama, and similar legislation in the Senate faces an uphill battle.

In the Middle East, an Iranian Revolutionary Guards general was killed near Aleppo, where he was advising the Syrian army. Russia launched a military operation in Syria this week, marking the beginning of a new and closer cooperation between Moscow and the Syrian regime of President Bashar al-Assad. The West has criticized Russia for the move.

Investors are worried more violence in the region could impact production and transport. Reports of Russian cruise missiles falling short and landing in Iran haven’t helped settle their nerves.

Saudi Arabia kept its crude oil production steady in September, an industry source told Reuters, maintaining a high level of output as part of a strategy to defend market share. There will have to be a change in the OPEC market share strategy for oil balances to return to normal in a reasonable period of time. Until that happens the current projected cut in U.S. production will not be enough.