Oil settles $1 down as supply set to rise, uncertainty around Fed rate cuts

HOUSTON, Aug 30 (Reuters) - Oil prices retreated on Friday as investors weighed expectations of a rise in OPEC+ supply starting in October, alongside dwindling hopes of a hefty U.S. interest rate cut next month, following data showing strong consumer spending.

Brent crude futures for October delivery , which expire on Friday, settled $1.14 lower, or 1.43%, at $78.80 a barrel, marking a decline of 0.3% for the week and 2.4% for the month.U.S. 

West Texas Intermediate crude futures settled down $2.36, or 3.11%, to $73.55, a drop of 1.7% in the week and a 3.6% decline in August.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, is set to proceed with a planned oil output hike from October, as the Libyan outages and pledged cuts by some members to compensate for overproduction counter the impact of sluggish demand, six sources from the producer group told Reuters.

"OPEC+ talking about going ahead with tapering off production cuts was the headline that really sunk us today," said Phil Flynn, analyst with Price Futures Group.

Meanwhile, investors responded to new data that showed U.S. consumer spending increased solidly in July, suggesting the economy remained on firmer ground early in the third quarter and arguing against a half-percentage-point interest rate cut from the Federal Reserve next month.

Lower rates can boost economic growth and demand for oil.

"That modest inflation increase could basically solidify that we will only get a quarter percentage-point cut and those hoping for a half will have to wait," said Price Futures Group's Flynn.

Elsewhere, Libya's National Oil Corporation said recent oilfield closures have caused the loss of approximately 63% of the country's total oil production, as a conflict between rival eastern and western factions continues.

Production losses could reach between 900,000 and 1 million barrels per day (bpd) and last for several weeks, according to consulting firm Rapidan Energy Group.

Libya's eastern-based government announced the closure of all oil fields on Monday, halting production and exports and driving oil to settle at a near-two week high on Aug. 26.

"It is interesting see the shutdown of Libya's crude oil production have such an impact on market prices one day and completely ignored the next," said Tim Snyder, chief economist at Matador Economics.

US drillers cut oil and gas rigs for third week in a row, Baker Hughes says

Aug 30 (Reuters) - U.S. energy firms this week cut the number of oil and natural gas rigs operating for a third week in a row for the first time since late June, energy services firm Baker Hughes (BKR.O), opens new tab said in its closely followed report on Friday.

The oil and gas rig count, an early indicator of future output, fell by two to 583 in the week to Aug. 30, to their lowest since June. 

Baker Hughes said that puts the total rig count down 48, or 8% below this time last year.

Baker Hughes said oil rigs were unchanged at 483 this week, while gas rigs fell by two to 95, their lowest since April 2021.

For the month, the total oil and gas rig count was down six after rising by eight last month.

Oil rigs were up one in August, while gas rigs were down six for the month.

In the Marcellus shale in Pennsylvania, Ohio and West Virginia, the nation's biggest gas-producing basin, drillers cut two rigs, bringing the total down to 23, the lowest since August 2016.

In Pennsylvania, meanwhile, drillers cut three rigs, bringing the total down to 18, the lowest since December 2021.

The oil and gas rig count dropped about 20% in 2023 after rising by 33% in 2022 and 67% in 2021, due to a decline in oil and gas prices, higher labor and equipment costs from soaring inflation and as companies focused on paying down debt and boosting shareholder returns instead of raising output.

U.S. oil futures were up about 3% so far in 2024 after dropping by 11% in 2023, while U.S. gas futures were down about 16% so far in 2024 after plunging by 44% in 2023.

reuters