Oil Caps Biggest Weekly Gain in Four Months as U.S. Supply Drops

Oil Rally Unlikely to Last, Here's Why
  • Crude stockpiles fell the most since June last week, EIA says
  • End of oil-export ban seen helping WTI reach parity with Brent

Oil in New York capped the biggest weekly gain in four months after U.S. crude inventories declined and drillers idled rigs.

West Texas Intermediate futures rose 9.7 percent this week, the biggest gain since August. Supplies fell by 5.88 million barrels last week, the largest loss since June, government data showed Wednesday. The number of active oil rigs in the U.S. fell by 3 to 538 this week, according to Baker Hughes Inc. Trading ended early today because of the Christmas holiday.

The world remains awash with oil. The global glut that’s sent WTI toward its second yearly decline may deepen after the Organization of Petroleum Exporting Countries effectively abandoned output limits earlier this month, according to KBC Energy Economics. Brent, the benchmark for more than half the world’s crude, is poised to end 2015 with the lowest annual average price in 11 years, hurting oil-exporting countries and companies.

"There are traders covering shorts going into the long holiday weekend after the long decline," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone.

WTI for February delivery rose 60 cents, or 1.6 percent, to close at $38.10 a barrel on the New York Mercantile Exchange. It was the highest settlement since Dec. 4. Futures touched $33.98 on Monday, the lowest since February 2009. The volume of all futures trading was 51 percent below the 100-day average at 1:35 p.m.

Brent for February settlement advanced 53 cents, or 1.4 percent, to end the session at $37.89 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at a 21-cent discount to WTI on ICE, after falling from a premium following the decision to end a ban on most U.S. oil exports.

U.S. Exports

Following the ban’s removal last week, Enterprise Products Partners LP said it will load 600,000 barrels of U.S. crude onto a tanker in the Houston Ship Channel in the first week of January. Trader Vitol Group will probably send the cargo to Europe, according to two people familiar with the transaction.

“The rise in prices is a short-term reaction to the large draw from U.S. inventories,” Ehsan Ul-Haq, a senior analyst at KBC Energy, said by phone from London. “This doesn’t take away from the fact that global supplies continue to remain very high and U.S. stockpiles are still higher than normal and prices will remain under pressure for a few more months at least."

Nationwide crude stockpiles fell to 484.8 million barrels in the week ended Dec. 18, according to the Energy Information Administration. Gulf Coast refiners typically curb deliveries at the end of the year to reduce local taxes. Supplies are more than 120 million barrels above the five-year seasonal average.

Next Year

Iran plans to boost output by about 500,000 barrels a day within weeks of international sanctions being lifted next year, and eventually add about 1 million barrels a day of supplies, Oil Minister Bijan Namdar Zanganeh said last month.

"When we come back from the holiday’s we’ll be keeping an eye on the lifting of the Iranian export restrictions and what that will mean for supply," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "The return of the Iranian shipments will be the major fundamental story of the first quarter."

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