Oil Halts 2-Day Drop as More Producers Cut SpendingMoming Zhou and Mark Shenk
Oil rose for the first time in three days as more producers announced cutbacks in response to the seven-month collapse in prices.
Total SA said on Thursday it will reduce spending and curtail exploration, while Apache Corp. is cutting its rig count by 70 percent. Oil demand is increasing and there are indications that prices are stabilizing, according to Saudi Arabia’s Oil Minister Ali al-Naimi. Oil tanker loadings were delayed in Iraq’s Basra oil terminal due to bad weather.
“The market is saying that these rig count drops are going to eventually bring lower production,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. “The market is trying to find the bottom.”
Rising U.S. supplies contributed to a global surplus that drove futures almost 50 percent lower last year. West Texas Intermediate, the U.S. benchmark, has rebounded 15 percent from its January low as producers idled drilling rigs and cut spending plans. Further price declines are needed for U.S. output growth to slow enough to re-balance global markets, Goldman Sachs Group Inc. said in a Feb. 10 report.
WTI for March delivery climbed $2.37, or 4.9 percent, to end at $51.21 a barrel on the New York Mercantile Exchange. The contract had dropped 7.6 percent in the previous two days. The volume of all futures traded was 86 percent above the 100-day average for the time of day.
Brent for March settlement, which expired Thursday, advanced $2.39, or 4.4 percent, to $57.05 a barrel on the London-based ICE Futures Europe exchange. The more-active April contract ended at $59.28. Volume was up 34 percent from the 100-day average. The European benchmark crude traded at a $5.84 premium to WTI.
WTI pared gains earlier and volume surged after Genscape Inc. was said to report a record increase in Cushing inventories, according to Phil Flynn, senior market analyst at the Price Futures Group in Chicago.
“The Genscape report took the wind out of the sails,” said Flynn. “Any reports with more supply are going to hit the market.”
The Bloomberg Dollar Spot Index slipped 1 percent. A weaker U.S. currency increases the appeal of dollar-denominated commodities as an investment.
Total will cut investment to $23 billion to $24 billion from last year’s $26 billion and slash the budget for exploration by 30 percent to less than $1.9 billion. Total is the last of the big oil companies to report earnings. Producers from Exxon Mobil Corp. to Chevron Corp. posted lower profit.
“Another spending cut from a major producer diverted some of the selling pressure in the market,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “Since we’ve dropped so much, the market will catch its breath occasionally, and that’s what we are seeing today. But the fundamental picture remains weak.”
Rigs targeting oil declined to 1,140 last week in the U.S., the lowest level since December 2011, according to Baker Hughes Inc. The count has dropped 29 percent since reaching a record high of 1,609 in October.
U.S. crude supply is still rising amid the drop in the rig count. Inventories of crude oil increased 4.87 million to 417.9 million barrels last week, the highest weekly level in data beginning 1982, the Energy Information Administration said Wednesday. Crude production grew to 9.23 million barrels a day, the most in EIA weekly estimates going back to 1983.
Crude production may stop growing by May or June as the rig count continues to decline, according to James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas.
Saudi Arabia’s Al-Naimi discussed a “relative improvement” in the oil market with Algeria’s justice minister at a meeting in Riyadh on Wednesday, the Saudi Press Agency reported. Increased demand, the stability of prices and the importance of cooperation among oil producers were mentioned, it said. Algeria is one of four OPEC members from Africa.
Saudi Arabia led a decision by the Organization of Petroleum Exporting Countries in November to maintain collective output quotas at 30 million barrels a day. The 12-member group, which supplies about 40 percent of the world’s crude, pumped
30.9 million a day in January, exceeding its target for an eighth straight month, according to data compiled by Bloomberg.
About 20 tankers have been waiting to load at Iraq’s Basra oil terminal with delays for as many as 13 days due to bad weather, according to two reports from port agencies. Exports from the country dropped 14 percent in January from December, according to the Oil Ministry.
“If it’s some weather problems and they didn’t get it out, it’ll be made up,” said Michael Hiley, head of over-the-counter energy trading at LPS Partners Inc. in New York.
U.S. supplies of gasoline rose 1.98 million barrels to
242.6 million last week, the highest level since March 1990, the EIA said Wednesday.
Gasoline futures for March delivery increased 5.23 cents, or 3.4 percent, to $1.5955 a gallon in New York. March ultra low sulfur diesel advanced 9.96 cents, or 5.5 percent, to $1.9137.
Regular gasoline at U.S. pumps is rebounding after dropping to the lowest level since April 2009 on Jan. 25. The average retail price rose 1.8 cents to $2.231 a gallon on Wednesday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
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