Crude Oil Rises From Two-Week Low as Market Seen Tightening

  • U.S. crude stockpiles forecast to climb 1.3 million barrels
  • Energy Department cuts forecast for 2016 domestic production

Oil climbed from a two-week low amid speculation that the buildup of U.S. crude inventories will soon end as refinery demand increases.

Futures rose 0.8 percent in New York. U.S. stockpiles probably increased by 1.3 million barrels last week, the smallest gain since September, according to analysts surveyed by Bloomberg. The Energy Information Administration cut its U.S. crude production outlook for 2016 Tuesday. Supply from non-OPEC countries will probably stop growing by 2020, the International Energy Agency said Tuesday in a report.

"We hit the bottom of the recent range and bounced back," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. "Stock builds are expected at this time of year, but that should end in the next couple weeks. We’re also seeing problems in the shale patch, which is also supportive."

The oil market has experienced a slump of 43 percent in the past year amid a global glut. U.S. stockpiles remain more than 100 million barrels above the five-year seasonal average after producers cut costs to maintain output. The Organization of Petroleum Exporting Countries is considering raising its official production target by 1 million to include the output from new member Indonesia, according to two OPEC delegates. OPEC said it pumped 31.57 million barrels a day in September, compared to its current 30 million target. OPEC meets Dec. 4 in Vienna.

Shale Production

West Texas Intermediate for December delivery advanced 34 cents to settle at $44.21 a barrel on the New York Mercantile Exchange. The contract fell to $43.87 on Monday, the lowest close since Oct. 27.

Futures retreated after the American Petroleum Institute was said to report U.S. crude supplies rose 6.3 million barrels last week. WTI traded at $43.77 at 4:36 p.m.

Brent for December settlement climbed 25 cents, or 0.5 percent, to end the session at $47.44 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude closed at $3.23 premium to WTI.

The EIA decreased its 2016 forecast by 1 percent to 8.77 million barrels a day, according to its monthly Short-Term Energy Outlook. It boosted its estimate for this year to 9.29 million barrels a day from the 9.25 million predicted last month.

U.S. shale volumes will shrink by 118,000 a barrels a day in December, the EIA said in its monthly drilling report Monday. Crude output at major shale plays across the U.S. will fall to about 4.95 million barrels a day next month.

OPEC’s Share

OPEC’s share of global crude supply will remain steady at 41 percent until the end of the decade, then rise to 44 percent by 2025, two percentage points higher than the IEA forecast a year ago. Production growth from countries not part of the group will slow over the next five years and halt by 2020.

"The IEA report was bullish in that it saw an eventual recovery in price and a greater need for OPEC supply," Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. "The market will tighten by 2020. That’s an awful long time to wait for $80 oil if you’re a trader."

Indonesia’s re-entry to OPEC after a break of almost seven years comes at a time when the group has abandoned its traditional role of supporting prices as it seeks to defend market share.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE