Oil futures settled lower on Monday, pulling back as last week’s strong climb lifted crude prices to a roughly one-month high.
Monday’s price decline put an end to a four-session streak of gains, which were fed by a surprise weekly drop in U.S. crude inventories. However, the Energy Information Administration on Wednesday may report an increase of 500,000 barrels in domestic crude stockpiles, covering the week ended Oct. 25, according Marshall Steeves, energy markets analyst at IHS Markit.
West Texas Intermediate crude for December delivery CLZ19, -1.46% lost 85 cents, or 1.5%, to settle at $55.81 a barrel on the New York Mercantile Exchange. December Brent crude BRNZ19, +0.02%, the global benchmark, fell 45 cents, or 0.7%, to $61.57 a barrel on ICE Futures Europe.
WTI on Friday ended at the highest level for a front-month contract since Sept. 24, scoring a 5.2% weekly rise, according to Dow Jones Market Data. Brent crude saw a 4.4% weekly advance to close Friday at its highest since Sept. 26.
Gains last week were driven in large part by supply concerns, particularly a sizable drop in U.S. oil product inventories. On Friday, data from oil-field services firm Baker Hughes BKR, -1.50% showed the number of active U.S. oil drilling rigs fell by 17 last week to 696 — the lowest tally since April 2017.
Growth in U.S. oil production will be a large driver in determining the scope of production cuts by the Organization of the Petroleum Exporting Countries and its allies, said Carsten Fritsch, commodity analyst at Commerzbank, in a Monday note. OPEC and its allied producers, namely Russia, must decide whether to extend or modify an agreement on output cuts that’s due to expire in April.
“As yet, the decline in [U.S.] drilling activity is not reflected in lower production growth, but this is probably only a question of time. It is already the case that shale oil production is rising noticeably only in the Permian Basin, and only slightly at Bakken,” Fritsch said. “It is already falling in other shale plays such as Eagle Ford and Anadarko.”
Natural-gas futures defied the losses among their energy peers to trade sharply higher, as cold weather forecasts in many parts of the U.S. lifted demand expectations for the fuel.
November natural-gas futures NGX19, +6.17% added 6.4% to settle at $2.446 per million British thermal units, for the highest front-month contract settlement month to date.
Over the weekend, President Donald Trump announced that the U.S. “brought the world’s No. 1 terrorist leader to justice”—killing Islamic State’s chief Abu-Bakr al-Baghdadi in Northern Syria.
“The news has put many countries on high alert on possible revenge attacks,” said Edward Moya, senior market analyst at Oanda. “It is unclear on who will take over as the leader of ISIS and how they will respond.”
“Geopolitical tensions will remain in place the Middle East,” he wrote in a daily note, suggesting that oil may find support.