Oil buoyed by drop in number of USA drilling rigs

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Crude oil prices have soared in the past few weeks due to speculation that OPEC will meet the terms of its supply quota agreement with Russian Federation.

"The risk at this point is somewhat to the upside, particularly if we continue to see weak drilling numbers in the United States", Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone.

Traders said the gains were due to a slight decline in the number of USA rigs drilling for new production.

The recent strength in crude has spurred speculation that American shale producers may be encouraged to expand drilling to take advantage of rising prices, countering the effect of cuts by Opec and its partners.

Higher inventories of gasoline and diesel, as well as the prospect of greater oil production from the US, could keep a lid on prices, analysts said.

Futures hovered just below the $62-a-barrel mark in NY after climbing to a three-year high last week. "How the market handles this may set the tone for the near term trend".

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The West Texas Intermediate for February delivery increased 0.29 USA dollar to settle at 61.73 dollars a barrel on the New York Mercantile Exchange, while Brent crude for March delivery added 0.16 dollar to close at 67.78 dollars a barrel on the London ICE Futures Exchange. Total volume traded was about 37% below the 100-day average.

States where prices moved most last week were: IN and MI (down seven cents); OH (down five cents); Minnesota and CT (up four cents); Alabama, California and Idaho (up three cents); and IL and Kentucky (down three cents).

Brent for March settlement added 13 cents, or 0.2%, to $67.75 a barrel on the London-based ICE Futures Europe exchange.

Among the 50 states, 38 experienced gas price increases last week. The price differential (spread) between WTI and Brent crude narrowed by almost a dime to $6.10 a barrel week over week. In the midst of investor pressure, explorers are seeking to do more with less in a bid to boost profits, including opening already-drilled wells by fracking them rather than deploying more rigs to start new ones.

Meanwhile, hedge funds increased last week their net long positions in Brent by 4 million barrels to a new record of 565 million barrels, Reuters market analyst John Kemp writes.

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