WTI Fades Below $40 as Rig Count Gains, Infections Rise

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Friday's session lower, with the December West Texas Intermediate contract falling as much as 2% after the number of active oil rigs in the United States increased for the fifth straight week to the highest level of activity in nearly six months, indicating an upturn in domestic output in the near term, while a relentless rise in new coronavirus infections across the European Union and the United States fueled concerns over deepening demand destruction in the fourth quarter.

At settlement, the December West Texas Intermediate futures dropped 79 cents to below $40 barrel (bbl) at $39.85 bbl, with losses accelerating post-settlement, while the December Brent crude on ICE shed 69 cents for a $41.77 bbl settlement. NYMEX ULSD November futures eased 0.94 cents to $1.1513 gallon and the front-month RBOB contract declined nearly 2 cents to $1.1389 gallon.

WTI futures moved sharply lower after Baker Hughes reported the U.S. oil rig count increased six during the week ended Friday and by 32 since late September to 211, the most since late May. The increase in rigs follows data from the Energy Information Administration released at midweek showing domestic oil production dropped 600,000 barrels per day (bpd) to 9.9 million bpd during the week ended Oct. 16, with the decline associated with shut-in production following Hurricane Delta.

The U.S. rig count gain coincided with an announcement from Libya's National Oil Corporation that it lifted force majeure on exports from ports of Es Sider and Ras Lanuf and said the country's crude production would reach 1 million bpd in four weeks. Al Waha Oil Co. which runs Es Sider said the port would start operating again on Saturday (10/24) with the first tanker expected within 48 hours. Libyan oil output has recovered to about 500,000 bpd since the end of the blockade, inching closer towards 1.2 million bpd it produced before the country's civil war.

Also weighing on the market are demand concerns heightened by the recent spike in coronavirus infections across several major global economies and subsequent restrictions on mobility and businesses. On Thursday, the United States reported more than 70,000 COVID cases for the first time in three months and trajectory suggests it may break new record highs in the coming days. Across the Atlantic, the European Union is battling a second wave of infections for weeks now with little success in halting the spread despite stringent new quarantine measures. Northern Italy and Ireland imposed localized lockdowns this week, shuttering all nonessential businesses and ordering residents to stay home.

The impact of these restrictions was evident in economic data released Friday, with consumer confidence and services sectors down in October. Eurozone's nonmanufacturing Purchasing Managers Index fell deeper into contraction at 46.2, while the region's consumer confidence soured to a negative 15.5 in early October.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges