Oil falls, but trades off day’s lows after PBOC move
London (Feb 29) Crude prices struggled on Monday, swinging between gains and losses as investors hoped a fall in U.S. oil rigs would ease excess supply while stronger spending by American consumers would spark demand for oil.
Crude also found some support after the People’s Bank of China on Monday cut the level of reserves which banks are required to hold, in a move aimed at bolstering the world’s second-largest economy.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in April CLJ6, +0.24% traded at $32.67 a barrel, down 11 cents, or 0.3% in the Globex electronic session. But April Brent crude LCOJ6, +1.03% on London’s ICE Futures exchange managed to trade roughly flat, edging up by 2 cents, or less than 0.1%, to $35.46 a barrel.
U.S. consumer spending grew in January at the fastest clip in eight months, new data showed Friday, as a strong job market and robust wage gains boosted Americans’ propensity to spend.
The pickup followed other improvement across the economy in January, including stronger retail sales and home purchases. A report Thursday showed new orders for big-ticket durable goods also increased last month following their worst annual performance since the recession, suggesting the U.S. manufacturing sector could be on the mend.
“This is great news for oil because it signals higher future demand,” said an energy analyst at an Australia bank.
Oversupply and tepid demand growth have pushed down prices by around 70% since mid-2014. Analysts say the persistently low prices are forcing some high-cost producers, such as those in North America, to trim production in order minimize cost.
The latest data released by the U.S. Energy Information Administration shows U.S. crude production continues to be on a downtrend, falling to 9.1 million barrels a day in the end week ended Feb 19.
Last week, the U.S. oil-rig count also slid further, falling by 26 to 413, according to a report by industry group Baker Hughes. There are now about 68% fewer rigs of all kinds from a peak of 1,609 in October 2014.
The number of U.S. oil-drilling rigs, viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices began to fall.
According to an analysis by Cantor Fitzgerald & Co. of 53 producers, U.S. crude-oil production is expected to fall 1.1% this year and expand 1.7% in 2017, down from expectations at the end of last year for growth of 4.6% in 2016 and a 3.1% expansion next year.
“The slow decline rate shows that it takes time for the U.S. shale producers to adjust to the low prices but it also shows that at this price level, it is not economical for many of them to keep going,” said Barnabas Gan, an energy analyst at OCBC.
Despite signs of falling production, the market remains heavily oversupplied. Some analysts say while the market has little expectation of any concrete actions by major oil producers to support prices, talks between Russia and Saudi Arabia to possibly freeze production at the January levels are providing a glimmer of hope.
This week, traders will take cues from China’s February manufacturing data, due Tuesday, and the weekly U.S. crude inventories and production data on Wednesday.
SOURCE: MARKETWATCH
