U.S. Oil Advances Above $50 a Barrel for First Time Since June

  • Global glut to persist in 2017; price to stall at $55: Goldman
  • U.S. crude inventories decline below 500 million barrels: EIA

'OPEC Has to Share Stage With Shale Producers'

Oil climbed above $50 a barrel in New York for the first time since June as declines in U.S. crude inventories and OPEC’s pledge to reduce supply lifted hopes the global glut may clear.

Futures increased 1.2 percent. U.S. crude stockpiles shrank below 500 million barrels last week for the first time since January, government data show. OPEC pledged in Algiers on Sept. 28 to reduce the group’s output to 32.5 million to 33 million barrels a day in a bid to shrink the world’s bloated oil supplies and boost prices. The market is set to remain oversupplied in 2017 and prices will stall at $55 a barrel as shale drillers get back to work, Goldman Sachs Group Inc.’s Head of Commodities Research Jeff Currie said.

"The main issue is the big decline in North American storage," said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. "The OPEC agreement is just spin to help support the market."

Oil has advanced 13 percent since the Organization of Petroleum Exporting Countries agreed to the first production cut in eight years. Some analysts have expressed doubt that individual output quotas -- to be determined at a meeting of the group in Vienna on Nov. 30 -- will be sufficient to erode the market surplus as several countries boost production to restore disrupted supplies.

West Texas Intermediate for November delivery rose 61 cents to $50.44 a barrel on the New York Mercantile Exchange. It’s the highest close since June 9. Total volume traded was 14 percent above the 100-day average at 2:48 p.m.

Open Interest

Open interest in WTI, or the number of contracts outstanding, rose to 1.91 million as of Wednesday, the most in three years, according to CME Group Inc. data compiled by Bloomberg.

Brent for December settlement rose 65 cents, or 1.3 percent, to $52.51 a barrel on the London-based ICE Futures Europe exchange. It’s the highest close since June 8. The global benchmark crude ended the session at a $1.53 premium to WTI for December delivery.

U.S. crude stockpiles dropped by 2.98 million barrels for a fifth weekly decline, the Energy Information Administration reported Wednesday. A Bloomberg survey had forecast a supply gain. Crude production declined for a second week to 8.5 million barrels a day.

"Crude inventories dropped by more than 25 million barrels in September," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $5.2 billion. "You should see prices rally after such a big number."

Producer Talks

OPEC members will meet next week for talks on implementing an output-cut deal, with Russia joining to discuss how producers from outside the group can participate in the plan, Venezuelan Oil Minister Eulogio Del Pino said in a government statement late Wednesday. Ministers from Saudi Arabia, Algeria, Gabon, Qatar and the United Arab Emirates will attend a meeting in Istanbul, along with Alexander Novak from non-OPEC member Russia, he said.

"The drop in crude inventories over the last several weeks is seen by some as a sign that the market’s rebalancing," said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. "It has a lot to do with an increase in crude-oil exports. The local glut is easing but that’s not helping the global glut."

Hurricane Matthew is heading for Southeast U.S. and may disrupt East Coast fuel shipments. Matthew’s top winds have grown to 140 miles (220 kilometers) per hour, up from 125 mph just hours ago as it churns in the Atlantic 125 miles east-southeast of West Palm Beach, according to the National Hurricane Center.

Fuel Prices

Diesel futures for November delivery climbed 0.9 percent to $1.5958 a gallon, the highest close since Oct. 8, 2015. November gasoline advanced 0.3 percent to $1.4978 a gallon.

The crude rally is threatened by the strengthening dollar, O’Grady said. The U.S currency climbed against most of its peers as better-than-forecast jobless claims data boosted speculation that the Federal Reserve will increase interest rates this year. A stronger greenback reduces the appeal of commodities as an investment. Precious and industrial metals declined Thursday.

Oil-market news:

  • Saudi Arabian Oil Co., known as Saudi Aramco, the world’s biggest oil company is planning to sell shares in the entire business and not just in its refining or distribution operations, Chief Executive Officer Amin Nasser said in an interview.

  • Gunvor Group Ltd., one of the four largest independent oil traders, doesn’t expect oil prices to push much above $50 a barrel for the next nine months as OPEC struggles to meet its goals for curbing production. 

  • Higher demand growth will result in “significantly lower” global inventories next year, FGE Chairman Fereidun Fesharaki said on Bloomberg TV.

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