Oil prices edged higher Friday, with US crude futures ending nearly unchanged over the week as traders mulled OPEC efforts to reach a more balanced market and continued to worry over the potential for more US shale production.
A third weekly decline in the number of active US oil drilling rigs, helped to ease some anxiety over output, as did comments from Schlumberger and Baker Hughes GE about signs of a cooling in demand in the US for their oil field services.
Schlumberger and Baker Hughes were among the biggest losers on the S&P 500 on Friday after the oilfield services companies warned that growth in North American drilling activities was expected to slow in the coming quarters. Surging US shale oil production has been a key source of growth for the two companies — which posted mixed third quarter results.
In fact Schlumberger’s CEO, Paal Kibsgaard said investments in North American shale oil is showing signs of moderating as companies move from chasing higher production to focus on reining in costs and boosting returns.
“I would say that [we expect] some growth in North America, but, obviously, not the same rate as what we’ve seen in previous quarters,” said Mr Kibsgaard. “This moderation can be seen in the flattening trend of the U.S. land rig count during the third quarter, and it is also reflected in our customers’ 2018 activity outlook.
“The more tempered activity outlook for U.S. land, combined with the short cycle nature of the business, has an immediate impact on the outlook for production growth, which were for 2017 and 2018, has been revised down by 100,000 and 500,000 barrels per day, respectively,” he said in comments some analysts took as being positive for oil prices.
The other oil services giant, Halliburton reports this week and investors will be looking for what they say on the outlook for oil.
The November West Texas Intermediate crude contract which expired at the end of Friday’s trade, rose 18 cents, or 0.4%, to settle at $US51.47 a barrel in New York, with the contract finishing 2 cents above their week-ago settlement.
The December contract the new front-month contract, added 33 cents, or 0.6%, to end at $US51.84 a barrel.
In London, Brent futures for December settled 52 cents higher, or 0.9%, at $US57.75 a barrel, about 1% higher for the week.
“The market is on its way to synchronizing supply with demand,” Adrienne Murphy, chief market analyst at AvaTrade, told MarketWatch.
She says the oil-market structure has “moved toward backwardation” That’s a situation in which prices for oil for delivery in the near future are higher than those for later deliveries.
“This makes it unprofitable for traders to hold oil in storage and to instead sell the barrels,” said Murphy. “This change is a sign of tighter supply and robust demand.”
At a conference in London last week, a number of industry experts said US output is likely to keep a ceiling on world prices as with new shale oil output coming.
Data released Friday from Baker Hughes revealed a third weekly fall in the number of active US oil rigs, a proxy for drilling activity, which fell by 7 to 736. The total active US rig count, which includes oil and natural-gas rigs, also dropped by 15 to 913.
US oil stocks fell 5.7 million barrels from the previous week to 456.5 million barrels, still high by historical standards, but slowly falling.
