Crude advanced as a weaker dollar made commodities priced in the U.S. currency more attractive to investors.
Futures climbed 1.9 percent in New York and 1.1 percent in London. The dollar dropped against all but one of its 16 major counterparts, extending last week’s fall, which was the biggest in three years, as the Federal Reserve damped the outlook for higher rates. Oil slipped as much as 2.7 percent in New York earlier on speculation that a global supply glut will persist.
Saudi Arabia is producing almost 10 million barrels a day, Oil Minister Ali al-Naimi said on Sunday, which would be close to a record if sustained for a month. A government report on Wednesday is projected to show that U.S. crude supplies climbed from the highest level in more than three decades, according to analysts surveyed by Bloomberg.
“As the dollar dropped, crude moved into positive territory,” Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. “The trend is still lower. Inventories should rise further in coming weeks which will cause crude to grind lower.”
West Texas Intermediate for May delivery rose 88 cents to settle at $47.45 a barrel on the New York Mercantile Exchange. The April contract expired on Friday after advancing $1.76 to $45.72. Total volume was 37 percent below the 100-day average at 2:46 p.m.
Brent for May settlement increased 60 cents to end the session at $55.92 a barrel on the London-based ICE Futures Europe exchange. Volume was down 18 percent from the 100-day average. The European benchmark crude closed at an $8.47 premium to WTI.
The Bloomberg Dollar Spot Index slipped 0.8 percent, adding to last week’s 2.2 percent decline.
“Prices are up from the lows because of the weakening dollar,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “There’s a strong reverse correlation between oil and the dollar, and we’re seeing it at work today.”
Crude dropped over the past month as U.S. output and inventories rose to the highest levels in more than three decades. Prices are unlikely to return to $100 a barrel because a surge would draw higher-cost producers into the market, said Mohammed Al-Madi, Saudi Arabia’s governor to the Organization of Petroleum Exporting Countries.
“The combination of both the Saudis and Americans pumping crude at near record levels is putting a lot of downward pressure on the market,” Yawger said.
Saudi Arabia, the world’s biggest oil exporter, is able to meet demand from any customer, al-Naimi said at a conference in Riyadh. While global consumption is improving, there isn’t enough need to expand the nation’s production capacity beyond its current level of 12.5 million barrels a day, he said.
The kingdom pumped 9.85 million barrels a day in February, increasing output for a second month, data compiled by Bloomberg showed. It’s the largest producer in OPEC, whose 12 members supply about 40 percent of the world’s oil. Saudi Arabia last pumped 10 million barrels a day in September 2013, according to data compiled by Bloomberg.
A falling rig count hasn’t trimmed U.S. crude production from the highest level in more than three decades. Drillers reduced the number of active machines seeking oil last week to the fewest since March 2011. The nation’s rig count shrank for a 15th week to 825, according to data from Baker Hughes Inc.
U.S. energy companies are prepared to boost drilling activity later this year and building a “war chest” of uncompleted wells, according to Goldman Sachs Group Inc.
“The current rig decline can reverse given flexibility in bringing back rigs at a lower cost,” Goldman analysts including Damien Courvalin in New York said in an e-mailed report dated March 20. “The backlog of uncompleted wells is rising.”
U.S. crude output rose to 9.42 million barrels a day in the seven days ended March 13, the most since the Energy Information Administration began compiling the data weekly in January 1983. Nationwide crude inventories climbed to 458.5 million barrels as of March 13, the most since at least 1982. Supplies at Cushing, Oklahoma, the delivery point for WTI traded in New York, advanced to 54.4 million, the highest since the EIA began tracking the hub’s stockpiles in 2004.
“The rebound in prices has to be dollar related because fundamentally there’s no reason for this to occur,” Tom Finlon, director of Energy Analytics Group LLC in Jupiter, Florida, said by phone. “There are concerns about Cushing getting filled to maximum capacity, which is incredibly bearish.”
Hedge funds were the least bullish on WTI since 2012, cutting net-long positions by 12 percent in the week ended March 17, U.S. Commodity Futures Trading Commission data showed.
Gasoline futures for April delivery rose 0.61 cent, or 0.3 percent, to settle at $1.8039 a gallon. April ultra low sulfur diesel slipped 0.36 cent to close at $1.7307.