Thursday 8 December 2016

Oil rises above $45 mark as US crude production declines

Mark Shenk

Published 13/09/2015 | 02:30

Oil advanced above $45 a barrel last week after US equities rebounded and speculation grew that declining American crude production may whittle away a global surplus
Oil advanced above $45 a barrel last week after US equities rebounded and speculation grew that declining American crude production may whittle away a global surplus

Oil advanced above $45 a barrel last week after US equities rebounded and speculation grew that declining American crude production may whittle away a global surplus. The Energy Information Administration cut forecasts for US crude output in 2015 and 2016, predicting a slide to 8.82 million barrels a day next year from 9.22 million a day in 2015 in its monthly Short-Term Energy Outlook on Wednesday. The market shrugged off an EIA report last Thursday that showed crude supplies climbed last week as refineries idled units to perform seasonal maintenance.

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Crude has fluctuated since dipping below $40 in August as concern over slowing Chinese growth fuelled volatility in world markets. Prices are down over 25pc from this year's June peak on speculation that a global glut will persist as OPEC members sustain output and US stockpiles swell.

Last week's uptick shows bearish traders are now starting to close short positions or buy back contracts, according to Saxo Bank A/S. "Oil is rising because the S&P is up and the short-term outlook showed a decent decline in US crude production through next year," Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said. "The inventory data has been bearish."

The volume of all futures traded was 31pc above the 100-day average. Prices have decreased 14pc this year.

"We still have excess production and supply but the situation should improve," Dan Heckman, senior fixed-income strategist at US Bank Wealth Management, which oversees about $127bn in Kansas City, Missouri, said last week. "The bottom in prices is here and prices should climb if demand continues to move upward."

The EIA cut its US crude output forecast for 2015 by 1.5pc to 9.22 million barrels a day in its Wednesday report. Production this year is still projected to be the highest since 1972, the report showed.

"This has been a rollercoaster," Chip Hodge, who oversees a $9bn natural-resource bond portfolio as senior managing director at John Hancock in Boston, said, adding: "The market will be vulnerable to moves south until there's a substantial decline in production."

US crude output slipped 83,000 barrels a day to 9.14 million last week, the lowest since January, the EIA said. Crude supplies rose 2.57 million barrels to 458 million, leaving stockpiles more than 100 million barrels above the five-year seasonal average.

Refineries operated at 90.9pc of capacity, the least since April 3, the report showed. US refiners cut operating rates during September in nine of the past 10 years at the end of the summer driving season.

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