American oil producers continue to boost activity in the face of a slowing in demand thanks to the rise of the latest wave of Covid infections in economies large and small.
The Baker Hughes US drilling rig count increased by 9 units to reach 500 rigs last week, the highest for 18 months.
According to Baker Hughes, the rig count was up 256 units from the 244 rigs working this time a year ago.
US oil-directed rigs were up 10 from last week at 397, more than double the 172 units were drilling for oil a year ago. That was up from 359 at the end of May. Rigs targeting gas fell by 1 to 102, 32 more than at this time a year ago.
Baker Hughes data showed it is a similar story north of the border in Canada where the total rig count increased by 8 units to 164 rigs drilling for the week. That was 110 more than the 54 units drilling this week a year ago. At 100 units, Canada’s oil-directed rig count gained 5 rigs from last week.
US daily output continues to hold well above 11 million barrels a day – the Energy Information Administration estimated it at 11.3 million barrels at the end of July and the start of August. A year ago, daily output was around 10.7 million barrels a day.
News of the sharp rise rig numbers came after the International Energy Agency (IEA) surprised with a warning that the rising Covid Delta infections had already started impacting global demand, cutting July consumption by around 120,000 barrels a day.
“Growth for the second half of 2021 has been downgraded more sharply, as new COVID-19 restrictions imposed in several major oil consuming countries, particularly in Asia, look set to reduce mobility and oil use,” the Paris-based IEA said.
“We now estimate that demand fell in July as the rapid spread of the COVID-19 Delta variant undermined deliveries in China, Indonesia and other parts of Asia,” it said in its monthly oil report.
The IEA said that global oil demand surged by 3.8 million barrels a day month-on-month in June, led by increased mobility in North America and Europe, but reversed course in July and is set to slow for the rest of the year due to the spread of the Delta variant.
West Texas Intermediate (WTI) crude oil ended lower on Friday, falling for a second-straight session following the IEA warning and the latest OPEC update showing that the group had hauled back on expectations for the continuing rise in demand over the rest of 2021 and into 2022 because of the rapid spread of Covid Delta infections, especially in China.
WTI crude for September delivery settled down 65 cents to $US68.44 a barrel while October Brent crude lost 63 cents to $US70.57 a barrel. Both fell further in late trading.
The IEA warned in its monthly oil market report that demand for oil began falling last month, dropping by 120,000 barrels a day, and is expected to be 500,000 bpd below its June forecast in the second half of the year as rising Covid-19 infections stall demand growth.
It also warned that the market could become oversupplied next year as a result – meaning growing pressure as the year goes on for markets to take the latest Covid infections more seriously than they now.
“OPEC+ has no scope whatsoever to further increase its oil production next year if it doesn’t want to risk another oversupply and inventory build. According to the IEA, oil stocks in industrialised countries in June were 66 million barrels below the pre-pandemic five-year average.
As the oil market will be virtually balanced for the remainder of the year, destocking is probably more or less complete and stocks should have bottomed out,” Commerzbank analyst Carsten Fritsch said in a note.
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On Friday, gold jumped more than $US25 as the latest survey of consumer confidence from the University of Michigan shocked with a slide to the lowest level since 2011.
That was a real shock to markets and the 13-point slide from July to early August was the 7th-largest recorded in the index’s 50-year history and was spread across all groups in the survey.
This led to a selloff in the US dollar, a fall Treasury bond yields which ended up as rare positive news for gold bulls.
That saw Comex gold futures close up 1.5% on the day at $US1,778.20 an ounce. Gold firmed to $US1,781 in after-hours trading. At settlement it was up 0.9% for the week.
Meanwhile, Comex copper ended the week 0.96% higher.
Comex prices finished at $US4.3870 a pound on Friday in New York.
The tentative settlement of a wage contract dispute between BHP and its employees at the huge Escondida mine in northern China.
So far there’s no impact from Covid Delta yet in copper prices, but it’s not too far away given the uncertainty elsewhere.
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Iron ore prices fell 6% or $US10.44 a tonne over the week to close at $US162.07 a tonne for 62% Fe fines delivered to northern China.
58% Fe fines also lost around 6% to end at $US130,66 a tonne – that’s now below the $US135 a tonne that Fortescue Metals said was its average 2020-21 price for its ore types.
That will soon start biting.
The price of Brazil’s higher quality 65% Fe fines also fell around 6% to $US191.20.
The slow growing Covid Delta infections in China will start crimping steel demand and send prices lower if there is no improvement soon. That will be negative for iron ore.
