Oil dips as rising U.S. yields steer bulls
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[April 23, 2018]
By Amanda Cooper
LONDON (Reuters) - Oil eased on Monday on
rising U.S. borrowing costs and the prospect of further output rises
after another increase in the weekly rig count, although the overall
picture for crude remained bullish.
Brent crude futures were down 49 cents at $73.57 a barrel by 0911 GMT,
while U.S. West Texas Intermediate (WTI) crude futures fell 51 cents to
$67.89 a barrel.
"Underlying sentiment is bullish ... we've got an important decision
from (U.S. President Donald) Trump coming up in May and we have OPEC
potentially trying to 'overtighten' the market," Saxo Bank senior
manager Ole Hansen said.
"(Fund managers) need a continuous flow of bullish news for their
position to be maintained and this week, it's not a matter of just
watching the oil market."
Broader financial markets were under pressure from the rise in U.S.
government yields toward 3 percent, a level that in the past has
triggered aggressive sell-offs in stocks, bonds and commodities.
"Whether a break above 3 percent will have an impact on currencies
remains to be seen, but to have an overall rising cost of finance at a
time when Saudi Arabia is aiming at $100, something is going to give.
Last time we were at $100 interest rates were rock-bottom and that
wasn’t a concern to anyone. This time around, it's a different story,"
Despite slipping on Monday, the oil market remains well supported,
especially by strong demand in Asia.
Prices have risen by 25 percent in the last year thanks to supply cuts
led by the Organization of the Petroleum Exporting Countries (OPEC) that
were introduced in 2017 to prop up the market.
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Crude oil is dispensed into a bottle in this illustration photo June
1, 2017. REUTERS/Thomas White/Illustration/File Photo
"Added price pressure comes from U.S. sanctions against the key oil exporting
nations of Venezuela, Russia and Iran," said J.P. Morgan Asset Management Global
Market Strategist Kerry Craig. He was referring to action the U.S. government
has taken on Russian companies and individuals, as well as on potential new
measures against struggling Venezuela and especially OPEC-member Iran.
"Stay long oil," J.P. Morgan said in a separate note.
The United States has until May 12 to decide whether it will leave a nuclear
deal with Iran and impose new sanctions against Tehran, including potentially on
its oil exports, which would further tighten global supplies.
That said, U.S. drilling activity is now at its highest in three years and a
rising weekly rig count points to further increases in U.S. crude production,
which is already up by a quarter since mid-2016 to a record 10.54 million
barrels per day (bpd).
Only Russia produces more, at almost 11 million bpd.
(GRAPHIC: U.S. oil rig count - https://reut.rs/2JdlIeM)
(GRAPHIC: Asia crude oil demand - https://reut.rs/2K2V89x)
(GRAPHIC: Brent crude oil in Russian ruble & Iranian rial - https://reut.rs/2Jh1JMw)
(Additional reporting by Henning Gloystein in SINGAPORE; Editing by Alexander
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