Oil ends at a 1-week low as traders eye U.S. crude output

By Myra P. Saefong, MarketWatch

Commentary by Curt Taylor, President of Ralph E. Davis Associates, an Opportune LLP company

EIA forecasts rise of 124,000 bbls/day in May U.S. shale oil output

close-up of pumpjack drilling in a u.s. oil rig, with a multicolored sunset with clouds in the background

Oil prices fell Monday to mark their lowest finish in about a week, pressured by data showing gains in the number of active U.S. oil rigs over the past 13 weeks and expectations for a rise in monthly domestic shale production.

May West Texas Intermediate crude CLK7, -0.94% fell 53 cents, or 1%, to settle at $52.65 a barrel on the New York Mercantile Exchange. Prices, which posted a gain of roughly 1.8% last week, settled at their worst level since April 7, FactSet data show. In London, June Brent crude LCOM7, -0.84%  on the ICE exchange also fell 53 cents, or 1%, to $55.36 a barrel.

On Monday, shortly before the Nymex settlement, a monthly report from the Energy Information Administration forecast a rise of 124,000 barrels a day in May to 5.193 million barrels a day for crude-oil production in seven major U.S. shale-oil plays.

New well oil output per rig in the Permian Basin was forecast at 662 barrels a day in May on a rig-weighted average, unchanged from April, according to the EIA.

But, according to Curt Taylor, president of Opportune LLP’s Ralph E. Davis Associates, the average productivity of a rig in the Permian before April 2009 was less than 100 barrels a day. “This, along with the increasing rig count and another increase in the [drilled but uncompleted] well count (up another 111 wells), means that U.S. production supply will continue to move up,” he said.

Baker Hughes BHI, +0.27%  data Thursday showed that the U.S. oil rig count rose for the 13th straight week in the week of April 13. At a total of 683, the current tally is the highest in two years.

“Broadly speaking, any sustained rally for global oil prices continues to be challenged by a steady rise in U.S. oil production,” said Robbie Fraser, commodity analyst at Schneider Electric, in a note Monday.

Traders have been concerned that growing U.S. output will offset efforts by the Organization of the Petroleum Exporting Countries and its allies to balance global oil supply and demand. OPEC and 11 other non-OPEC producers agreed to cut production by 1.2 million barrels day for the first half of this year.

Jason Schenker, president of Prestige Economics LLC, told MarketWatch that he expects to see a production-cut rollover in May—when OPEC is scheduled to make its decision on an extension.

“A rollover [of the output-cut deal] will be critical to supporting oil prices. I see higher prices during the summer, but I also see upside risks for prices over the next two years, as the global economy accelerates,” said Schenker.

On Nymex Monday, May gasoline RBK7, -0.80%  fell 0.9% to $1.720 a gallon, while May heating oil HOK7, -0.89%  lost 1% to $1.633 a gallon.

May natural gas NGK17, -2.01% fell 2% to $3.163 per million British thermal units.

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