BackOil climbs above $60 first time this year as supply seen slowing
Brent futures rose as much as 4.2% and are headed for a third weekly gain
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New York: Oil extended its rally above $60 a barrel in London amid speculation that a decline in US drilling will slow crude output and curb a global supply glut.
Brent futures rose as much as 4.2% and are headed for a third weekly gain. Apache Corp. said Thursday it was cutting its oil-drilling rigs by 70% as Total SA joined companies including BP Plc and Royal Dutch Shell Plc in reducing spending. Weather delays may reduce shipments from Iraqi ports by 1 million barrels a day this month, according to consultant Petromatrix.
Oil is recovering from the lowest prices in almost six years as US drillers cut the number of rigs in service to the fewest since August 2011. Crude will rebound in the second half of this year as low prices slow supply growth and stimulate demand, while the potential for OPEC to support the market “should not be ignored," according to JPMorgan Chase & Co.
“The market overreacted to the downside and now is pricing in supply risk," Dan Flynn, a trader at Price Futures Group in Price Futures Group in Chicago, said by phone. “The market is seeking its new trading level."
Market movement
Brent for April settlement rose $1.68, or 2.8%, to $60.96 a barrel on the London-based ICE Futures Europe exchange at 1.36 pm New York time. The volume of all futures traded was 48% above the 100-day average. The March contract expired on Thursday after increasing $2.39 to $57.05. Front-month futures last traded above $60 on 29 December.
West Texas Intermediate oil for March delivery advanced $1.08, or 2.1%, to $52.29 a barrel on the New York Mercantile Exchange. Volume was up 40% from the 100-day average. The April WTI contract traded at $53.30, a $7.66 discount to April Brent.
Houston-based Apache said it will reduce its rig count by the end of this month. Explorers in the US cut the number of machines in service to 1,056 through Friday, the 10th week of decreases, according to Baker Hughes Inc., an oilfield services company based in Houston.
“We’re going to probably see the market lurch with bearish and bearish signals," Stewart Glickman, an equity analyst at S&P Capital IQ in New York, said by phone. “They aren’t going to help themselves because drilling is what they like to do. As soon as the six- to 12-month price outlook is good enough, they will jump back and there will be a repetition of what’s gone on during the past year."
Total cutbacks
Total will cut spending and curtail exploration this year, the Courbevoie, France-based company said on Thursday. Europe’s second-largest oil company will trim investment to $23 billion to $24 billion, compared with $26 billion in 2014, and reduce the exploration budget by 30% to less than $1.9 billion.
Bad weather in Iraq is prolonging delays to loadings of Basrah Light crude, with 24 vessels at anchorage now waiting to load, according to a port-agency report obtained by Bloomberg.
“There is a long list of tankers floating empty around the Basrah terminal," Olivier Jakob, managing director of Zug, Switzerland-based Petromatrix, said in an e-mailed report. “With all the delays, it is about 1 million barrels a day of Iraqi supply which will be missing from loadings in February."
Libyan crude output fell 150,000 barrels a day to 300,000 in January, the least since June, according to a Bloomberg survey. The country pumped 1.585 million in January 2011 before the rebellion that ended Muammar Qaddafi’s 42-year rule.
‘Long List’
“Iraqi exports are down and Libyan shipments are at a standstill," Thomas Finlon, the Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “These issues have a much bigger impact on Brent than WTI."
U.S. crude inventories expanded to 417.9 million barrels through 6 February, the most in records dating back to August 1982, the Energy Department’s statistical arm said. Output accelerated to 9.23 million barrels a day, the fastest pace in weekly EIA data that started in January 1983, the Energy Department’s statistical arm said.
“When the price of oil drops, companies cut spending but that won’t lead to a drop in supply," David Heidel, a regional investment strategist in Minneapolis at US Bank Wealth Management, which oversees about $126 billion of assets, said by phone. “There’s going to be a persistent oversupply. You can’t put a cork in the ground and stop the oil flow."
‘Persistent Oversupply’
The euro-area economy picked up momentum at the end of last year, with Germany reasserting itself as the driver of growth, offsetting weakness in Greece and Italy. The value of global equities climbed to more than $66 trillion this week, near a record, as concern eased over the Greek and Ukrainian crises and corporate profits topped estimates.
“Prices rose based on the surprising growth out of Europe," Heidel said. “The supply side of the chessboard is set. This is going to impact the demand side."
Gasoline futures for March delivery increased 0.93 cent to $1.6048 a gallon. March ultra low sulfur diesel rose 5.07 cents to $1.9644 after reaching $1.9821, the highest since 24 December.
Regular gasoline at US pumps is rebounding after dropping to the lowest level since April 2009 on 25 January. The average retail price rose 0.8 cent to $2.239 a gallon on Thursday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
Ben Sharples in Melbourne, Jake Rudnitsky in Moscow and Rupert Rowling in London contributed to this story. Bloomberg
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