Oil Rallies on OPEC Forecast of Increased Demand
Demand to Increase but Non-OPEC Supply to Contract in 2015
By
TIMOTHY PUKO And
ESE ERHERIENE
Updated Feb. 9, 2015 10:56 a.m. ET
Oil prices are rallying for a third straight session on signs of higher demand and lower supply, including a more optimistic forecast Monday from the Organization of the Petroleum Exporting Countries.
OPEC’s new monthly oil-market report said demand for its crude will rise this year as the U.S. produces less and consumes more. It estimates that demand will grow to 29.2 million barrels a day, 100,000 more than a year ago. That reverses a forecast for a 300,000 barrel-a-day decline in demand. It also reduced non-OPEC supply growth estimates by 420,000 barrels a day.
U.S. producers have already cut the number of oil rigs in operation, which is also firing the rally, brokers and analysts said. Operators shut down another 83 last week last week. At 1,140, the number of rigs currently working is at its lowest level since December 2011, and down 29% since a record high as recently as October 2014.
Light, sweet crude for March delivery was recently up $1.71, or 3.3%, at $53.40 a barrel on the New York Mercantile Exchange. Brent crude for March delivery recently traded up 77 cents, or 1.3%, to $58.57a barrel on the ICE Futures Europe exchange.
Prices had fallen nearly 60% between June and late January. Many traders are looking for supply-and-demand signals to back up their sense that the steep fall has hit a bottom.
“There’s a limit to take it down any lower,” said Jeffrey Grossman, president of BRG Brokerage in New York. “Now we’re working in an area that’s more believable.”
The move to reduce non-OPEC supply was seen as a response to falling rig counts, which have declined faster than the market expected.
“They were very high to begin with,” said Amrita Sen, chief oil analyst at Energy Aspects. “At current prices, such a huge part of non-OPEC supply is uneconomic that you would expect this kind of revision to take place.”
Prices had dipped lower in overnight trading, with many analysts suggesting gains since late January can’t hold. Both Barclays PLC and Citigroup Inc. sent out notes early Monday saying that rig cuts won’t lead to production cuts, and prices will have room to fall back as storage fills up and their supplies go back onto the market.
“The recent rally in crude prices looks more like a head-fake than a sustainable turning point,” Citi analysts said.
Demand in the second-largest consumer, China, is also down, limiting price gains, said Commerzbank. China imported 6.6 million barrels a day of crude oil, a decline of 8% month-on-month. The previous month had been a record for imports, but year-over-year oil imports were also down despite low prices, a surprise, the bank said.
“If China were to buy less in future, this would increase the oversupply on the oil market and make it more difficult for oil prices to recover further,” said Commerzbank.
March reformulated gasoline blendstock, or RBOB, recently rose 3.70 cents, or 2.4%, to $1.5961 a gallon.
March diesel recently rose 3.61 cents, or 8%, to $1.8752 a gallon.
—Benoît Faucon contributed to this article.
Write to Ese Erheriene at ese.erheriene@wsj.com and Timothy Puko at tim.puko@wsj.com
And so we are told this is the golden age
And gold is the reason for the wars we wage U2
