Crude Oil Surges Above $50 a Barrel for First Time Since July

Energy Aspects: Oil Production ‘Falling Rapidly’
  • Global demand to rise more than forecast on low prices: OPEC
  • New capital discipline' to allow demand to catch supply: Ross

Oil surged above $50 a barrel in New York for the first time since July on speculation that demand is picking up.

West Texas Intermediate crude advanced 3.4 percent. Demand will climb more this year than previously projected amid cheaper fuel prices, OPEC Secretary-General Abdalla Salem El-Badri said yesterday in a statement to the International Monetary Fund. A "new capital discipline" in the industry will allow demand to catch up with supplies, boosting prices, according to Gary Ross, founder and chairman of PIRA Energy Group. Gains accelerated on reports that Russian cruise missiles meant for Syria landed in Iran.  

“The most significant development now is the OPEC secretary general talking up the demand number,” Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by phone. “He’s also predicting a significant drop in production growth, which is adding support.”

Oil fell to a six-year low in August amid speculation a global glut will persist through next year. U.S. stockpiles remain about 100 million barrels above the five-year average and the Organization of Petroleum Exporting Countries continues to pump more than its quota.

WTI for November delivery rose $1.62 to settle at $49.43 a barrel on the New York Mercantile Exchange. It was the highest settlement since July 21. Futures touched $50.07. The volume of all futures traded was 45 percent higher than the 100-day average at 3:01 p.m.

Rising Consumption

Brent for November settlement advanced $1.72, or 3.4 percent, to $53.05 on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a $3.62 premium to WTI.

Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMF’s International Monetary and Financial Committee. Commercial oil inventories in developed countries remain about 190 million barrels above the five year average , he said.

It will take the U.S. shale industry at least nine months to ramp production back up and boost output after prices rise to more profitable levels, Ross said at PIRA’s annual conference Thursday. Ross predicted last year’s rout before turning bullish this year.

Russian Missiles

Four Russian cruise missiles intended to land in Syria fell short and crashed in rural Iran, a U.S. defense official said Thursday. The official, who asked not to be identified discussing sensitive military information, said the U.S. wasn’t certain what damage was caused by the missiles fired from vessels in the Caspian Sea.

"The geopolitical premium is getting prices back into the market," Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone."When the Russians are firing cruise missiles that are falling in Iran you have to be concerned that things will spiral out of control. The tension in the Middle East is escalating."

Venezuela’s Oil Minister Eulogio del Pino said OPEC and non-OPEC crude-producing countries will hold a technical meeting Oct. 21. The South American country has been calling for a meeting for the last month as low prices batter it’s economy. 

Saudi Competition

Saudi Arabia, OPEC’s biggest producer, led the group’s decision last November to compete for market share rather than support prices. The kingdom cut November 2015 pricing for oil sales to Asia and the U.S., signaling it’s still fighting to capture market share.

"I don’t know if this meeting is going to go anywhere, but they’re meeting because they’re a little concerned about what the heck they’re going to do if Iran starts dumping oil on the market,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone. "The Saudis are afraid if they cut production some other producers will just fill the void.”

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