Crude Climbs Amid Improving Demand Outlook as Dollar Declines

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Crude climbed after OPEC boosted its global oil demand outlook while the dollar dropped against its peers.

The Organization of Petroleum Exporting Countries raised its 2015 consumption estimate in a monthly report Tuesday. U.S. shale oil output fell by about 1 percent this month and the decline will gather momentum in June, the Energy Information Administration said on Monday. A weaker dollar bolstered investor interest in commodities.

Oil has rebounded from a six-year low in March amid speculation that record U.S. output from shale would slow as companies reduce exploration. Prices are set to slide, with the cut in drilling rigs not big enough to lead to persistently lower production, Goldman Sachs Group Inc. analysts including Jeffrey Currie said in a report dated Monday.

“The market is up because OPEC’s demand growth forecast rose while we’re seeing more signs that production is starting to fall,” Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. “The dollar is down a lot, adding to bullish sentiment.”

WTI for June delivery advanced $1.50, or 2.5 percent, to settle at $60.75 a barrel on the New York Mercantile Exchange. Total volume was 7.5 percent below the 100-day average at 4:40 p.m. Prices have increased 14 percent this year.

Futures extended gains after the American Petroleum Institute was said to report a U.S. crude inventory decline. Supplies fell 2 million barrels last week, the API said, according to reports on Twitter. Futures climbed $1.91, or 3.2 percent, to $61.16 in electronic trading at 4:40 p.m.

Brent for June settlement rose $1.95, or 3 percent, to close at $66.86 a barrel on the London-based ICE Futures Europe exchange. Volume was up 17 percent from the 100-day average. Brent has risen 17 percent this year. The European benchmark crude traded at a $6.11 premium to WTI.

Demand Outlook

World oil demand will probably rise 1.18 million barrels a day to 92.5 million, OPEC said. That’s about 10,000 barrels a day higher than was forecast in April. Last year’s consumption total was revised 40,000 barrels a day higher.

The EIA reduced its 2015 forecast for U.S. oil production Tuesday in its monthly Short-Term Energy Outlook. Output will reach 9.19 million barrels a day in 2015, down 40,000 from last month’s estimate of 9.23 million.

Output from U.S. shale formations is set to decline in June to a five-month low of 5.56 million barrels a day, the EIA said. Production will shrink by 54,227 barrels a day in May.

“Futures have climbed on anticipation of a slowdown in U.S. production in the second half of the year,” Helima Croft, chief commodities strategist at RBC Capital in New York, said by phone. “Geopolitics didn’t matter when we were looking at a 2 million barrel a day surplus last year. Now that production is seen falling there’s been a reintroduction of the geopolitical premium.”

Yemen Conflict

Saudi Arabia-led air strikes hit an arms depot outside Yemen’s capital and at least 20 people were reported dead, a day before the kingdom has pledged to start implementing a cease-fire. Iran said its navy will escort a ship carrying aid to Yemen, where rebels with ties to the Islamic Republic are fighting Saudi allies. The moves have the potential to add to tensions in a region that abuts some of the world’s biggest oilfields and key shipping routes.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, dropped 0.5 percent to 1,163.4 at 4.41 p.m. A falling dollar increases the appeal of raw materials priced in the U.S. currency as a store of value.

U.S. crude inventories fell to 487 million barrels in the week ended May 1, EIA data showed last week. That was the first drop since January. Supplies remain near the highest level since 1930, based on monthly records dating back to 1920. Stockpiles probably dropped by 250,000 barrels last week, a Bloomberg survey of analysts showed before government data Wednesday.

Drilling Activity

Oil drillers cut the number of active machines to 668 last week, the fewest since September 2010, according to Baker Hughes Inc., an oil-services company. The rig count has decreased 58 percent since December.

WTI settling above $60 a barrel will eventually lead producers to increase activity and cut their well backlog, Goldman said. The bank predicts the global oil market will be oversupplied by 1.9 million barrels a day in the second quarter of 2015.

Saudi Arabia boosted crude production for a second month to the highest level in at least three decades. The kingdom increased daily crude output by 13,700 barrels in April to an average of 10.308 million, according to data the country communicated to OPEC’s secretariat in Vienna.

“I don’t think you’ll see a big jump in exports because they will need the extra barrels to burn in June and July as power demand climbs,” Croft said.

OPEC will leave its output ceiling unchanged when it meets June 5, Abdulmajeed Al-Shatti, a member of Kuwait’s Supreme Petroleum Council, said Tuesday in an interview in Doha. The 12-member group left its quota unchanged at 30 million barrels a day when it met in November.

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