Oil prices recovered from early losses on Monday as the market digested news of a modest rise in U.S. drilling activity, though uncertainty lingered over the outcome of a meeting of the world’s major exporters next month to discuss freezing output.
U.S. energy firms last week added one oil rig after 12 weeks of cuts, according to data from industry firm Baker Hughes. Oil rigs have fallen by two-thirds over the past year to their lowest since 2009, and this surprise addition suggested the drop-off in crude drilling may be stabilising after the oil price’s 50-percent rally since February.
“We would not over-interpret this (rise in rigs), however, given that the oil rig count is still at its lowest level since 2009. What is more, there have been only two weekly increases in the oil rig count since August – neither of which proved lasting,” Commerzbank analysts said in a note.
Brent crude futures were 2 cents lower at $41.18 a barrel by 1105 GMT, having risen from a session low at $40.48, while U.S. futures eased by 53 cents to $38.91.
The Commerzbank analysts said U.S. oil production still appeared fairly robust, due in part to special factors such as temporarily higher productivity and producers’ price hedging strategies. “We therefore continue to expect U.S. oil production to decline sharply in the coming weeks and months.”
The Federal Reserve’s more cautious note last week on the outlook for U.S. interest rates sapped the dollar of some strength. That theoretically encourages demand for dollar-priced assets such as commodities, as these become less costly for overseas investors.
Oil hit a 2016 high above $40 a barrel last week, encouraged by optimism that OPEC and its major non-OPEC counterparts could strike a deal next month to leave supply unchanged at January’s levels.
That could help mitigate one of the largest global build-ups of unwanted crude in modern times, but analysts are wary of betting too heavily on this.