Worst Seems Over for Oil as Supply Drops, OPEC Talks Longer Deal

  • Supply falls 5.25 million barrels, more than twice forecast
  • American crude production rises again to highest since 2015

Oil climbed for a second day, leaving the worst of last week’s rout behind for now, as U.S. stockpiles fell and two OPEC members said there’s a consensus to extend output cuts.

Futures rose 1.1 percent in New York after surging 3.2 percent on Wednesday, when government data showed a 5.25-million barrel stockpile drop last week. Two members of the Organization of Petroleum Exporting Countries said Thursday there is consensus on extending production curbs for six more months when the group meets May 25. Price gains eased after OPEC boosted forecasts for supplies from rivals this year by 64 percent.

"We’ve probably put a floor in the market," Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at U.S. Bank, which oversees $136 billion in assets, said by telephone. "Inventories did fall last week and investors are pricing in expectations of OPEC extending the cuts. Those looking for a bullish narrative have found it."

West Texas Intermediate for June delivery climbed 50 cents to settle at $47.83 a barrel on the New York Mercantile Exchange. Total volume was about 7 percent above the 100-day average. Futures rose $1.45 to $47.33 on Wednesday, the biggest gain since Dec. 1.

Brent for July settlement increased 55 cents, or 1.1 percent, to $50.77 on the London-based ICE Futures Europe exchange, after rising 3.1 percent on Wednesday. The global benchmark oil closed at a $2.57 premium to July WTI.

Oil is advancing after tumbling last week to the lowest since OPEC agreed to trim output in November. All OPEC members support an extension of the cuts for a second six-month period, as do non-members that joined last year’s accord to curtail excess global supply, Iraq’s Jabbar Al-Luaibi and Algeria’s Noureddine Boutarfa said Thursday in a joint news conference in Baghdad.

OPEC Signals

"The signals from OPEC as well as some non-OPEC members are pretty clear, that they will continue with their production cut,” Rainer Seele, chief executive officer of Vienna-based OMV AG, said in a Bloomberg Television interview. “It will stabilize the oil price, we will see the oil price in the low 50s.”

See also: Goldman to IEA see oil bulls back on top as cuts dent stockpiles

"Yesterday’s numbers were a sea change," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "We’ve got two big events on the horizon that should be bullish. The OPEC meeting is on May 25 and then there’s Memorial Day on May 29, which is always a big event on the energy calendar."

Still, concerns remain about rising U.S. production, which the Energy Information Administration sees climbing to a record next year. Production from outside OPEC will rise by 950,000 barrels a day this year, OPEC said in a report Thursday, revising its forecast up by about 370,000. The projection is four times higher than in November, when the group announced a production cut to try and re-balance oversupplied world markets. Non-OPEC nations pump about 60 percent of the world’s oil.

U.S. crude stockpiles dropped to 522.5 million barrels last week, down from a record 535.5 million barrels at the end of March, according to EIA data. Meanwhile production increased for a 12th week to 9.3 million barrels a day, the highest level since August 2015.

Seele discusses oil prices on Bloomberg TV.

Source: Bloomberg

Oil-market news:

  • Royal Dutch Shell Plc said it’s time to discuss using Russian crude to help determine the Brent benchmark, in what would be the most radical shift in how European prices are calculated since the 1970s.
  • Saudi Arabia told OPEC the kingdom’s output rose slightly to 9.946 million barrels a day in April, according to a person with knowledge of the data, who asked not to be identified because the information isn’t public.

— With assistance by Grant Smith

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