Oil Rises Ahead of U.S. Stocks Report
23 February 2017 - 10:42PM
Dow Jones News
By Sarah McFarlane and Jenny W. Hsu
Oil prices rallied Thursday amid expectations that U.S. crude
stocks are shrinking as supply cuts from the Middle East curb the
country's imports.
Brent crude, the global oil benchmark, rose 1.4% to $56.80 a
barrel on London's ICE Futures exchange. On the New York Mercantile
Exchange, West Texas Intermediate futures were up 1.3% at $54.30 a
barrel.
Data from industry group American Petroleum Institute published
Wednesday showed an 884,000 barrel decrease in weekly crude
supplies, a 893,000 barrel decline in gasoline stocks and a 4.2
million barrel decrease in distillate inventories. Official data
from the U.S. Energy Information Administration will be released
later Thursday.
"If there is a stock draw then it should come from lower imports
and I suppose that's really where people are looking for some
positive news from the weekly numbers," said Ole Hansen, head of
commodity strategy at Saxo Bank.
Data shows the 20 oil producers, in and outside of the
Organization of the Petroleum Exporting Countries, have largely
kept their promise to reduce collective output by 1.8 million
barrels a day starting in January to tackle a global supply glut.
However, a steady increase in U.S. crude production and inventories
is stoking concerns that global supply remains bloated despite
these cuts.
Mr. Hansen said the impact of the cuts out of the Middle East
will start to be felt over the coming weeks, due to the time delay
from when a ship sets sail to the vessel's arrival in the U.S.
At the same time, U.S. producers likely added another 3.4
million barrels to the latest total of 518 million barrels for the
week ended Feb. 17, according to analysts surveyed by The Wall
Street Journal.
With oil prices staying above the $50 a barrel mark, more shale
drillers are returning to the oil fields, suggesting U.S. crude oil
production will likely continue to increase. The EIA estimates
total U.S. production to average 9 million barrels a day in 2017
and 9.5 million barrels a day next year.
Costs are starting to creep up, however, due to the rising
activity among producers.
"We're starting to see high spec rig costs rise, these are rigs
designed to be the most efficient in shale. It's the start of an
inflection point where the break-even costs are bottoming out,"
said Mark MacLean, head of the U.K. unit at oil-data firm Rystad
Energy.
The firm estimates shale producers need an oil price of $30-$40
a barrel to break even.
Rising U.S. output will offset OPEC's effort to dry out the
market and potentially push oil prices back to the low $50s or high
$40s range, analysts warned.
"OPEC will need to keep the limits on production beyond the
initial six-month term if inventories are to be drawn down over the
second half of the year," said Tim Evans, a Citi Futures analyst.
OPEC is scheduled to meet in May to review the cuts and discuss
whether to extend the production curtailment further.
Nymex reformulated gasoline blendstock--the benchmark gasoline
contract--rose 1% to $1.75 a gallon. ICE gasoil changed hands at
$499.50 a metric ton, up $10.00 from the previous settlement.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W.
Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
February 23, 2017 06:27 ET (11:27 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.