- EIA projected to report U.S. supplies declined a second week
- Saudi Arabia seen planning on $37 a barrel Brent oil in 2016
Crude climbed as traders counted on another week of declines in U.S. crude inventories to help ease the glut that’s pushed prices below $40 a barrel.
Futures rose 2.9 percent in New York, paring Monday’s 3.4 percent slide. U.S. crude stockpiles probably fell a second week, according to a Bloomberg survey before government data Wednesday. Prices rebounded despite Saudi Arabia’s planned cuts to 2016 spending that are based on a Brent price next year of $37 a barrel, according to John Sfakianakis, a Riyadh-based economist at Ashmore Group Plc and a former government adviser.
"We should get another draw in oil inventories tomorrow," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion in assets. "It looks like the Saudi budget is pricing in prices at least as weak as they are now. This is important and not at all positive for the market."
Crude is heading for its second annual decline amid a global supply glut that may deepen as OPEC effectively abandons output limits and Iran plans to raise production once sanctions are lifted. Brent, the benchmark for more than half the world’s oil, is poised to end 2015 with the lowest annual average price in 11 years, hurting energy-exporting countries and companies.
West Texas Intermediate oil for February delivery climbed $1.06 to settle at $37.87 a barrel on the New York Mercantile Exchange. Trading volume was 58 percent below the 100-day average at 2:52 p.m.
Futures slipped from the close after the American Petroleum Institute was said to report U.S. crude supplies fell 2.9 million barrels last week. WTI traded at $37.36 at 4:53 p.m.
Brent for February settlement rose $1.17, or 3.2 percent, to $37.79 a barrel on the London-based ICE Futures Europe exchange. The European benchmark oil closed at an 8-cent discount to WTI. Brent traded lower than WTI last week for the first time in 11 months after the U.S. decided to lift its restrictions on crude exports.
U.S. crude supplies probably fell by 2.5 million barrels last week, according to a Bloomberg survey of analysts before an Energy Information Administration report. Gulf Coast refiners typically curb deliveries at the end of the year to reduce local taxes. Stockpiles of both gasoline and distillate fuel, a category that includes diesel and heating oil, climbed by 500,000 barrels, the survey showed.
"There’s a slight chance that crude supplies rose last week, and if that’s the case it will be due to imports," O’Grady said. "The narrowing of the spread with Brent could lead to increased arrivals. Inventories will rise in the new year and things could get ugly by mid January."
Saudi Arabia will cut spending next year and reduce energy subsidies as revenue is projected to drop by more than 15 percent. Oil sales will make up about 70 percent of the country’s budget next year, according to Ashmore Group’s Sfakianakis.
Iran has completed a “significant step” in fulfilling its nuclear commitments, according to U.S. Secretary of State John Kerry. As Iran prepares to add more supply to the glut, hedge funds reduced bets on rising prices to a three-month low in the week ended Dec. 22, data from the U.S. Commodity Futures Trading Commission show. Money managers also cut their bullish bets on Brent crude during the period, data from ICE Futures Europe show.
Commodities climbed after China’s stocks rebounded from the biggest drop in a month, reducing concern about the world’s second-biggest economy. The Bloomberg Commodity Index, a gauge of 22 raw materials, rose as much as 1.6 percent. It slumped to the lowest level since 1999 on Dec. 17.
Diesel rose as colder weather arrived in much of the U.S., increasing demand for home-heating fuel. January diesel futures rose 3.91 cents, or 3.6 percent, to settle at $1.1295 a gallon in New York. It’s the biggest gain since Dec. 3.