Oil drops on rising U.S. rig count

By Christopher Johnson

Oil prices slipped on Friday as a rising U.S. rig count stoked fears of global oversupply and after Chinese regulators opened an investigation into suspected stock market manipulation.

U.S. oil drilling increased this week for the first time after 29 weeks of declines, a sign U.S. crude production may start to increase more strongly again after a slowdown due to a period of low oil prices.

Oil rigs increased by 12 to 640 following a slump that cut the number of active U.S. rigs from a peak of 1,609 in October to a nearly five-year low last week, energy services firm Baker Hughes Incsaid.

"This is the first weekly increase in 30 weeks and is an indication that the slump in drilling activity has ended," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.

"Oil prices have retreated on that news," Fritsch told Reuters Global Oil Forum.

Brent crude for August was down 25 cents at $61.82 a barrel by 1315 GMT (0915 EDT), extending a downward trend since early May, which has seen prices fall almost 10 percent.

Front-month U.S. crude was at $56.76, down 17 cents, dropping below a trading range of $57 to $62 seen since early May.

"The current U.S. horizontal and vertical rig count across the Permian, Eagle Ford, Bakken and Niobrara shale plays implies that U.S. oil production growth will reach 135,000 barrels per day (bpd) year-on-year" by the fourth quarter of 2015, Goldman Sachs said on Friday.

The rising U.S. rig count adds to near-record production by Russia and the Organization of the Petroleum Exporting Countries, which is feeding a huge oversupply.

OPEC oil supply hit a three-year high in June due to record or near-record output from Iraq and Saudi Arabia, a Reuters survey showed this week. The cartel's production is close to 2.5 million bpd above demand, filling stocks worldwide. [OPEC/O]

The Greek economic and debt crisis and concerns over China's commodities markets weighed on investor sentiment.

Traders said commodity markets were also worried by reports that China's regulators had opened an investigation into suspected market manipulation after a slump of more than 20 percent in Chinese stocks since mid-June.

On Thursday, Shanghai's benchmark composite index <.SSEC> fell below 4,000 points for the first time since April - a key support level that analysts had expected Beijing to defend.