Oil prices rose yesterday for the first time in a week as the dollar fell and investors in global markets cautiously bought some riskier assets as anxiety eased about Britain’s possible exit from the European Union.
Crude futures were still on track for a weekly loss after daily declines Monday through Thursday.
Brent crude futures’ front-month contract were up $1.28, or 2.7%, at $48.47 a barrel by 11:14am (1514 GMT).
The front-month in US crude’s West Texas Intermediate (WTI) futures rose $1.18, or 2.5%, to $47.39.
For the week, Brent was down 4% and WTI about 3%.
On Thursday, Brent and WTI lost about 4% each as investors fretted that the global economy could be thrown into turmoil if the UK votes next week to ditch its EU membership.
Yesterday, Britain mourned the death of UK member of parliament Jo Cox, a day after the vocal advocate for Britain remaining in the union was murdered.
Her death threw next week’s referendum on EU membership into limbo.
The dollar fell about a quarter percent, retreating from its 2-week high on Thursday that had weighed on demand for greenback-denominated oil from the holders of the euro and other currencies.
Some analysts cautioned that with UK’s future EU still unknown until a vote next Thursday, oil could come under pressure again.
“It’s mainly Brexit at the moment, at least until next Thursday, before people start to look at the more fundamental oil/commodity drivers again,” ABN Amro’s senior energy economist Hans van Cleef said.
Julian Jessop, chief economist and head of commodities research at Capital Economics, told Reuters Global Oil Forum that a Brexit situation could lead to a sharp oil sell-off sending Brent to as low as $40.
In industry news, global oil majors Chevron and Royal Dutch Shell were putting up small refineries for auction as they looked to trim lower-margin assets amid rising crude prices.
Meanwhile, US drillers this week added oil rigs for a third week in a row for the first time since August, according to a closely followed report yesterday, as producers seek more drilling permits after crude prices hit an 11-week high over $51 a barrel last week.
Despite a decline in US crude futures to one-month lows to under $47 this week, analysts and producers have said oil over $50 was a key level that would trigger a return to the well pad and drilling permits are a leading indicator of future drilling.
Drillers added nine oil rigs in the week to June 17, bringing the total rig count up to 337, compared with 631 a year ago, energy services firm Baker Hughes said.
Before this week, drillers added rigs in only three out of 23 weeks this year, cutting on average nine oil rigs per week for a total of 208. That compares with cuts of 18 rigs per week on average in 2015 for a total decline of 963, the biggest annual decline since at least 1988 amid the biggest rout in crude prices in a generation.
The rig count has declined since hitting a peak of 1,609 in October 2014.
The slide came three months after US crude futures began crumbling from a high of around $107 in July 2014 to reach a near 13-year low of about $26 in February this year.
To figure out how many rigs US producers will likely add, analysts said they look to drilling permits, which they forecast rising. In most states, producers drill a land well about two months after the state issues a permit because the firm has already incurred significant expenses to secure the acreage and conduct geologic surveys, among other things, analysts at US investment banking advisory Evercore ISI said this week.
“Land operators are restless after a year and a half of declining activity, and we expect the recent crude rally to bolster permit application totals heading into the warmer (and dryer) months,” Evercore said, noting the Permian and Eagle Ford will likely be the first-move shale plays for producers looking to put rigs back to work in 2017. After falling to 1,807 permits in February, the lowest monthly level since at least 2006, Evercore forecast the number of land permits would rise to a year-to-date high around 2,119 in June from 2,033 in May. That put total annual land permits on track this year to fall below 2015’s lows. Land permits peaked at 86,955 in 2008 and bottomed at 43,940 in 2015, according to Evercore data going back to 2006. Pioneer Natural Resources Co said this week it expects to boost its 2016 capital budget by about $100mn to $2.1bn as a result of rig additions.
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