Oil set for third monthly drop as US rig count gains amid glut

In Photo: In this February 13 file photo, stacks and burn-off from the Exxon Mobil refinery are seen at dusk in Saint Bernard Parish, Lousiana. A barrel of US crude fell below $40 per barrel on August 21 for the first time since the end of the global economic crisis.

OIL headed for a third monthly decline as US drillers showed no signs of letting up even as a supply glut persists.

Futures fell as much as 2 percent in New York after the biggest two-day rally since 2009. The number of active rigs seeking oil in the US increased for a sixth week to 675, the most since the start of May, according to Baker Hughes Inc. A measure of oil-price fluctuations rose on Friday to a five-month high.

Oil is holding losses after a slide this month below $40 a barrel, the lowest since February 2009, on concern slowing demand in the US and China will leave the global market oversupplied. While crude has swung higher amid a rebound in commodities and equities, prices are still down more than 25 percent from this year’s peak in June.

“The retracement is the market coming back to the reality that nothing much has really changed on the supply front,” David Lennox, an analyst at Fat Prophets in Sydney, said by phone. “We’re not expecting to see any change to the volatility, but we do expect that the direction for oil will probably be down rather than up.”

West Texas Intermediate (WTI) for October delivery dropped as much as 92 cents to $44.30 a barrel on the New York Mercantile Exchange and was at $44.70 at 1:38 p.m. Singapore time. The contract climbed 17 percent in the two days through Friday, the most since January 2009. The volume of all futures traded was more than double the 100-day average. Prices have decreased 5.1 percent for the month.

Rig count

Brent for October settlement fell as much as $1.10, or 2.2 percent, to $48.95 a barrel on the London-based ICE Futures Europe exchange. Prices are 5.6 percent lower in August, set for a fourth monthly decline. The European benchmark crude traded at a premium of $4.68 to WTI. The US rig count gained by 1 in the week ended August 28, data from Baker Hughes, an oilfield-services company, showed on Friday. Crude stockpiles in the country, the world’s largest oil consumer, were at 450.8 million barrels, about 90 million above the five-year seasonal average, according to the Energy Information Administration.

Money managers boosted bullish bets on WTI just before the two-day surge in futures, US Commodity Futures Trading Commission data showed. Net-long positions rose by 5,770 contracts, or 6.2 percent, to 99,176 futures and options through August 25. The Chicago Board Options Exchange Crude Oil Volatility Index closed at 51.56 on Friday, the highest since March 31.

The gauge of hedging costs on the US Oil Fund, the biggest exchange-traded fund tracking WTI, has advanced 33 percent in August, the most this year.

Image credits: AP/Gerald Herbert

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