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Oil Holds Gains Near $61 as Impending Supply Gap Eclipses Shale

Updated on
  • U.S. crude production rose for third week to record-high
  • Drop in Venezuelan production may exacerbate supply shortfall
BofAML Sees Potential for Oil Prices to Rise

Crude circled around the $61-a-barrel mark as the International Energy Agency warned of an impending shortfall in global oil supplies even as U.S. shale drillers lifted output to unprecedented heights.

Futures ended the session higher for a second day, yet traded in a tight 72-cent range in New York on Thursday. The dire situation in Venezuela’s oil sector may exacerbate a worldwide supply deficit expected later this year, the Paris-based IEA said. At the same time, American crude output continues to surge.

“This is a range-bound market for the moment,” Rob Haworth, who helps oversee $151 billion in assets at U.S. Bank Wealth Management in Seattle, said by telephone. “The data this week has been somewhat mixed -- you’ve got the IEA talking about higher demand, you’ve got Saudi Arabia talking about their commitment to production cuts. The countervailing factor ends up being shale production growth.”

Crude hovered close to $60 a barrel since mid-February, yet hasn’t been able to hold a strong rally above that level, even as the Organization of Petroleum Exporting Countries works to cut output through the remainder of the year.

Saudi Arabia remains committed to OPEC’s objective of “restoring inventories to their normal levels,” the kingdom said earlier this week. Yet, OPEC shipments will rise by 100,000 barrels a day in the four weeks to March 31, according to tanker tracker Oil Movements.

Investors are also awaiting next week’s Federal Reserve policy decision and more clarity on tariffs on Chinese imports, according to Haworth.

West Texas Intermediate for April delivery rose 23 cents to settle at $61.19 a barrel on the New York Mercantile Exchange. Total volume traded was about 20 percent below the 100-day average.

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Brent for May settlement edged up by 23 cents to end the session at $65.12 a barrel on the London-based ICE Futures Europe exchange, and traded at a $3.87 premium to WTI for the same month.

The IEA raised its estimate of global oil demand growth in 2018 by 90,000 barrels a day to 1.5 million a day as a stronger outlook for developed economies offset weakening expectations for emerging nations.

U.S. crude production jumped to 10.4 million barrels a day last week, according to U.S. government data.

“There is a lot of questions around where we fall by year-end 2018 in terms of year-over-year U.S. production growth,” Brad Hunnewell, senior equity analyst at Rockefeller & Co., said by telephone. Yet, “Venezuela is an unexpected offset to incremental U.S. production growth.”

Oil-market news:

  • Gasoline futures added less than 1 percent to settle at $1.9248 a gallon.
  • Analysts and traders are mixed on WTI crude futures, with the same number bullish, bearish and neutral, according to a Bloomberg survey.
  • Libya will load at least 10 crude cargoes at Zawiya port, according to an April loading plan seen by Bloomberg.

— With assistance by Tsuyoshi Inajima, Heesu Lee, and Grant Smith

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