Oil rises a second day as equity gains offset supply concerns

By Grant Smith on 3/6/2018

LONDON (Bloomberg) -- Oil rose in tandem with global equity markets, shrugging off concerns over a new wave of crude production from the U.S. as fears of a global trade war eased.

After jumping 2.2% on Monday, futures added 1% in New York on Tuesday. European and Asian stocks rose as President Donald Trump faced resistance to plans for a series of import tariffs, while a  diplomatic breakthrough with North Korea also boosted optimism. Still, the International Energy Agency’s warning that OPEC production cuts will unleash a supply surge from the U.S. and other producers maintained a note of caution in the market.

Oil has traded above $60/bbl for most of this year as the Organization of Petroleum Exporting Countries and allied producers continue efforts to drain a global supply glut through voluntary cuts. Yet concern that record U.S. crude output will climb further has capped any significant rallies. OPEC producers need to “reconsider” their output plans in light of rising American production, the IEA’s Executive Director Fatih Birol said.

“The price rise was probably due to better sentiment on the financial markets,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “The production growth in the U.S. should be sufficient almost on its own to meet the expected rise in global oil demand until 2020.”

West Texas Intermediate for April climbed as much as 71 cents to $63.28/bbl on the New York Mercantile Exchange and traded at $63.19 as of 1:09 p.m. London time. The contract advanced $1.32 to settle at $62.57 on Monday, the biggest jump since Feb. 14. Total volume traded Tuesday was about 9% below the 100-day average.

Brent for May settlement was 52 cents higher at $66.06/bbl on the London-based ICE Futures Europe Exchange, after rising $1.17 on Monday. The global benchmark traded at a $3.08 premium to May WTI.

The production cuts that helped push prices above $60/bbl are triggering a flood of supply from OPEC’s rivals including Brazil and Canada, which will cover all growth in global demand until 2020, the IEA said. The agency may also raise its forecast for U.S. output if oil stays above $60/bbl, Birol said during the CERAWeek oil conference in Houston. Non-OPEC growth is so strong that the oil market will change for years, he said.

Still, there are spots of optimism too. While global demand growth will slow by 2023, it will still increase by an average 1.1% a year, and peak consumption is not yet in sight, the IEA said.

Other oil-market news. Crude stockpiles in Cushing, Oklahoma probably slid for an 11th straight week to the lowest since 2014, according to a Bloomberg survey. Meanwhile, nationwide U.S. inventories are  forecast to have risen by 2.5 MMbbl last week. It’s too early for OPEC to discuss extending production cuts into 2019, OPEC Secretary-General Mohammad Barkindo said in Houston. OPEC officials and U.S. shale producers met for second consecutive year for dinner and "compared notes" after a difficult period of low oil prices -- with few signs the two sides are growing fonder of each other.

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