Oil rallies 3% as US shale shows signs of slowdown

[NEW YORK] Oil rose 3.3 per cent on Tuesday to the highest close in more than a month, a day after US oil producer Anadarko said it would cut capital spending plans and Saudi Arabia vowed to reduce crude exports to help curb global oversupply.

Brent crude futures rose US$1.60 or 3.3 per cent to settle at US$50.20 a barrel, the first time the benchmark closed above US$50 since June 6. US West Texas Intermediate futures rose US$1.55 or 3.3 per cent to settle at US$47.89 a barrel, the highest close for that benchmark since early June.

The lower oil prices in June and July may have been affecting US shale production, said Mark Watkins, regional investment manager at US Bank.

"Companies are not drilling as fast as they had been in the beginning of 2017," he said, "They're not producing as much because it's much less profitable with prices in the low US$40s."

On Monday, Anadarko Petroleum Corp posted a larger-than-expected quarterly loss and said it would cut its 2017 capital budget by US$300 million because of depressed oil prices, the first major US oil producer to do so.

Earlier, Halliburton's executive chairman said growth in North America's rig count was "showing signs of plateauing".

"In the US investors have been waiting to see where that top is in oil production," Mr Watkins said, "We've hit a tension point."

At a meeting of the Organization of the Petroleum Exporting Countries (Opec) and non-Opec producers on Monday in St Petersburg, Russia, Saudi Arabian energy minister Khalid al-Falih said his country would limit crude exports to 6.6 million barrels per day (bpd) in August, down almost 1 million bpd from a year earlier.

Nigeria agreed to join the deal by capping or cutting its output from 1.8 million bpd once it stabilises at that level.

Opec said stocks held by industrial nations had fallen by 90 million barrels in the first six months of the year but were still 250 million barrels above the five-year average, which is the target level for Opec and non-Opec members.

US crude stocks fell sharply last week as refineries boosted output, while gasoline inventories increased and distillate stocks decreased, data from industry group the American Petroleum Institute showed on Tuesday.

Crude inventories fell by 10.2 million barrels in the week ending July 21 to 487 million, compared with expectations for a decrease of 2.6 million barrels. Both benchmarks rose more than two US dollars after the data in post-settlement trading.

However, higher oil prices could be a "double edged sword" Commerzbank wrote in a note on Tuesday.

"US shale oil companies... would immediately take advantage of the higher price for hedging purposes and would step up their production again in the medium term."

REUTERS