Oil rises second day as OPEC cuts seen bringing stockpiles lower

Robert Tuttle 5/29/2017

CALGARY (Bloomberg) -- Oil rose on expectations OPEC will succeed in bringing down inventories as the summer driving season kicks off in the U.S.

Futures climbed for a second session in New York after an OPEC-led deal to extend output limits through March was initially met with a selloff last week as deeper cuts or a plan for the rest of 2018 weren’t proposed. But Saudi Arabia’s Energy Minister Khalid Al-Falih said the strategy is working and stockpiles will drop faster in the third quarter. Many expect the driving season that’s starting with the Memorial Day holiday to help ease the glut.

The cuts “will continue to help inventories draw through the summer,” said Craig Bethune, a fund manager at Manulife Asset Management Ltd. in Toronto who focuses on energy and natural resources investments. There is “modest recovery from the OPEC selloff the other day.”

U.S. inventories have dropped seven weeks in a row in a sign Al-Falih may be right, though they still remain above the five-year average. To speed up that decline, Saudi Arabia plans to reduce exports to the world’s biggest consumer.

The shale expansion that many fear will offset the Organization of Petroleum Exporting Countries’ efforts showed the first signs of slowing down last week, with the fewest rigs added this year, Baker Hughes Inc. data show.

West Texas Intermediate for July delivery rose 19 cents, or 0.4%, to $49.99/bbl as trading halted on the New York Mercantile Exchange around 1 p.m. Earlier, it touched $50.28. There will be no settlement on Monday because of the holiday. Total volume was about 78% below the 100-day average. Prices fell 1.1% last week.

Brent for July settlement rose 14 cents, or 0.3%, to $52.29/bbl on the London-based ICE Futures Europe exchange, trading at a premium of $2.30 to WTI. The global benchmark crude fell 2.7% last week.

“We believe the next big move for prices is up as oil inventories fall at an even faster pace in the coming weeks,” Giovanni Staunovo, a Zurich-based commodity analyst at UBS Group AG, said by email. While U.S. shale output is set for “robust growth” in the second half of the year, “we see the oil market tightening further in the coming quarters,” he said.

Rigs targeting crude in the U.S. increased for a 19th straight week in the longest streak of gains since August 2011, the Baker Hughes data show. But while the number has more than doubled from last year’s low, to 722, the total rose by a meager two rigs last week. Drillers in Colorado led the growth. The nation’s busiest oil patch, the Permian basin of west Texas and New Mexico, added just one, its smallest gain in more than a month.


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