U.S. oil rises above $60 for first time this year as glut fades

5/5/2015

ANGELINA RASCOUET and GRANT SMITH

NEW YORK (Bloomberg) -- Oil rose above $60/bbl in New York for the first time since December, extending the biggest monthly advance since May 2009 on signs the U.S. supply glut is easing.

Futures rose as much as 3.1% in New York after gaining 25% in April. Crude stockpiles at Cushing, Oklahoma, the biggest U.S. oil-storage hub, last week shrank for the first time since November, according to government data.

EOG Resources, the biggest shale-oil producer, said it lost money in the first quarter after taking steps to halt output growth following the price slump. Saudi Arabia kept its discount for June crude sales to Asia unchanged.

Oil has rebounded from a six-year low reached in March as U.S. drillers cut the number of operational oil rigs to the fewest since 2010, adding to signs that the surplus may decline. U.S. crude stockpiles are still at the highest in 85 years, raising speculation the rally may falter.

“Round numbers are always to be watched,” Olivier Jakob, managing director at Petromatrix GmbH said by e-mail from Zug, Switzerland. “U.S. markets are getting excited about any hints of lower production or stock draws in Cushing. U.S. crude oil production hasn’t yet started to decline but crude oil prices have already risen.”

West Texas Intermediate for June delivery was at $60.62/bbl on the New York Mercantile Exchange, up $1.69, at 9:20 a.m. New York time. The volume of all futures traded was 10% above the 100-day average for the time of day. Prices climbed 14 percent this year.

Brent rising

Brent for June settlement added $1.60 to $68.05/bbl on the London-based ICE Futures Europe exchange. The contract rose 21% in April, also the most since May 2009. The European benchmark crude was at a premium of $7.46 to WTI.

Saudi Arabia kept the discount at which it will sell its Arab light crude to Asia at 60 cents to regional benchmarks, unchanged from May, state-owned Saudi Arabian Oil Co. said today. Saudi Arabia cut the prices to a record low of $2.30/bbl in March in a bid to retain market share in the region and has since narrowed the price differential.

“This signals a market moving ever closer to balance,” Hamza Khan, an Amsterdam-based senior commodity strategist at ING Bank NV, said by e-mail. “The Saudis don’t want a pyrrhic victory, Asian refiners can absorb high volumes of crude at current prices, so the Saudis have little incentive to hike prices and lose market share, or discount prices and lose revenue.”

Saudis not worried about Iran

Saudi oil minister Ali al-Naimi said in an interview on CNBC that he isn’t “worried at all” about the return of Iranian crude to the market if sanctions on the country are lifted as part of a deal on its nuclear program.

U.S. crude inventories probably increased by 1.2 MMbbl through May 1, a 17th weekly gain, according to a Bloomberg survey before an Energy Information Administration report Wednesday. Stockpiles expanded to 490.9 MMbbl in the week ended April 24, EIA data showed last week. That’s the highest level since 1930, based on monthly records from the Energy Department’s statistical arm dating back to 1920.

Inventories at Cushing, Oklahoma, the delivery point for WTI contracts, fell by 514,000 bbl to 61.7 MMbbl, the EIA said. Crude inventories at the hub probably fell 200,000 barrels in the week ended May 1, according to a Bloomberg storage model.

“I still expect rising U.S. crude oil inventories, but at a slower pace than recorded on average in April,” Daniela Corsini, a Milan-based analyst at Intesa Sanpaolo SpA, said by e-mail. Stockpiles should be stable in Cushing, she said.

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