Oil extended its rally amid speculation that the US shale boom is slowing and will reduce a global glut that’s driven prices to the lowest in 5 1/2 years.
Futures rose as much as 1.7% in New York, trimming a seventh weekly decline. US producers are bailing out of long-term contracts for drilling rigs as prices slide below $50 a barrel.
The United Arab Emirates has no plans to reduce output no matter how low prices drop, according to Yousef Al Otaiba, the nation’s ambassador to the US.
Oil is trading near the lowest levels since April 2009 amid concern a global supply surplus estimated by Qatar at 2 million barrels a day will persist this year.
The Organization of Petroleum Exporting Countries is battling a US shale boom by resisting production cuts, signaling it’s prepared to let prices fall to a level that slows the highest American output in more than three decades.
“Some US producers may need to reconsider their investments because oil prices have now halved,” Ken Hasegawa, an energy trading manager at Newedge Group in Tokyo, said. “But it’s unclear if the declines are over.”
West Texas Intermediate for February delivery climbed as much as 82 cents to $49.61 a barrel in electronic trading on the New York Mercantile Exchange and was at $49.22 at 2:07 p.m. Singapore time.
The contract gained 14 cents to $48.79 yesterday. The volume of all futures traded was 21% above the 100-day average. Prices are down 6.6% this week.
Brent for February settlement increased as much as 48 cents, or 0.9%, to $51.44 a barrel on the London-based ICE Futures Europe exchange.
The European benchmark crude traded at a premium of $2.04 to WTI, compared with $3.73 at the end of last week.
Helmerich & Payne Inc. (HP), the biggest rig operator in the US, said it had received early termination notices for four contracts, while Pioneer Energy Services Corp. said four rigs have been canceled early.
Producers may cut short another 50 to 60 agreements, according to Andrew Cosgrove, an analyst at Bloomberg Intelligence.
Companies are paying to cancel rigs rather than keep drilling amid the collapse in oil prices.
Contracts for the 190 rigs that on-land drillers were projected to add this year, known as newbuilds, have the highest risk of being terminated, Cosgrove said.
US output expanded to 9.14 million barrels a day through December 12, according to the Energy Information Administration.
That’s the highest level in weekly data from the Energy Department’s statistical arm that started in January 1983.
The UAE can sustain in the current market condition for “a lot longer than people expect,” Al Otaiba, the ambassador, said in Washington yesterday.
“This extra glut in the market is not coming from the OPEC members, so therefore why should the OPEC members have to cut their production?”
OPEC’s 12 members, which supply about 40% of the world’s oil, agreed on November 27 to maintain their collective output quota at 30 million barrels a day.
They’re next scheduled to meet on June 5.
Implied volatility for at-the-money options in the front-month WTI contract advanced to 60.2% this week, the highest level in more than three years, data compiled shows. It’s about 46% today, while Brent’s volatility is near 44%.
WTI may fall next week, according to a survey. Twenty-two of 43 traders and analysts, or 51%, said future will decrease through January 16, while 11 respondents predicted a gain.
The survey has correctly predicted the direction of futures 51 percent of time the since it began in April 2004.
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