BackOil advances as IEA sees price plunge curbing non-Opec supplies
Non-Opec oil producers will boost output at a slower rate than previously forecast, aiding a recovery in crude prices, IEA said in its monthly report
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London & New York: Oil advanced, paring an eighth weekly decline, as the International Energy Agency (IEA) lowered forecasts for supplies from outside Opec and said prices could recover.
West Texas Intermediate crude rose as much as 4.6% in New York. The US benchmark crude grade is heading for a loss of 1.8% this week, capping the longest run of weekly declines since March 1986. Non-Opec oil producers will boost output this year at a slower rate than previously forecast, aiding a recovery in crude prices, the IEA said in its monthly market report.
“The IEA report is the first serious evidence that low oil prices are rebalancing the market," Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Massachusetts, said by phone. “The price has probably gone down enough. We’ve rebounded a few times as prices have dropped and it will be interesting to see how things work out this time."
WTI for February delivery increased $1.24, or 2.7%, to $47.49 a barrel at 12:06pm on the New York Mercantile Exchange. Prices dropped to $44.20 on 13 January, the lowest level since April 2009. The volume of all futures traded was 23% above the 100-day average for the time of day.
Brent market
Brent for March settlement rose 87 cents, or 1.8%, to $49.14 a barrel on the London-based ICE Futures Europe exchange. Volume for all futures traded was 3.6% higher than the 100-day average. The February contract expired on Thursday after decreasing $1.02 to $47.67. The European benchmark crude traded at a $1.75 premium to the March WTI contract.
Oil fell almost 50% last year, the most since the 2008 financial crisis, as supplies swelled amid the fastest pace of US production in more than three decades and the Organization of Petroleum Exporting Countries (Opec) resisted calls to cut output. Goldman Sachs Group Inc. and Societe Generale SA were among banks to reduce their price forecasts this week.
“The market is trying to consolidate here," Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion, said by phone. “It looks like selling has been exhausted. We are probably not done yet and will probably resume selling soon."
Saudi policy
WTI tumbled 69% from $31.82 a barrel in November 1985 to $9.75 in April 1986 when Saudi Arabia, tiring of cutting output to support prices, flooded the market. Prices didn’t claw back the losses until 1990.
“The best historical analogy for what’s happening is 1986," O’Grady said. “It will be extraordinarily painful for non-Opec producers to lead the way to a rebalanced market."
The IEA, a Paris-based adviser to industrialized nations, lowered its non-Opec supply growth estimate by 350,000 barrels a day, the first cut since the 2015 forecast was introduced in July. Half the reduction is from Colombian output while effects on US production are so far “marginal," it said.
The slowdown in output growth will lead to a “rebalancing" of currently oversupplied global markets in the second half, reviving prices, the agency said.
‘Very oversold’
“The market is very oversold and has been looking for signs for a pick-up," Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd, said by phone from London. “The IEA has very clearly come out and said there will be an impact from price. They’ve lowered Canada, Colombia production- wise, they’ve talked about shale as well."
Lower prices won’t bolster demand because of underlying weakness in the global economy, said the agency, which kept its global oil consumption forecast for 2015 unchanged.
US crude supplies rose 5.39 million barrels to 387.8 million last week, the highest since June, according to an Energy Information Administration report on 14 January. Production climbed 60,000 barrels a day to 9.19 million in the seven days ended 9 January, the highest in weekly estimates that started in January 1983, according to EIA data.
Challenging market
“There was a little supportive news today with the IEA reducing the non-Opec production forecast," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “This still looks like a very challenging market. We’re going to see 1.5 million barrels a day of excess production through the first half of the year and possibly more."
WTI may extend losses next week, according to 21 of 40 analysts and traders in a Bloomberg News survey. Eleven said futures will advance and eight projected little change.
Gasoline futures for February delivery climbed 2.34 cents, or 1.8%, to $1.3228 a gallon in New York. February ultra- low sulfur diesel rose 1.61 cents, or 1%, to $1.6394.
Retail gasoline, averaged nationwide, slid 0.3 cent to $2.082 a gallon yesterday, the lowest since May 2009, according to Heathrow, Florida-based AAA, the largest US motoring group. Bloomberg
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