Oil rises on signs of slowing production

London (Apr 22)  Oil prices advanced Friday and were on track to finish the week on a positive note on a decline in production, but analysts cautioned against the sustainability of the recent rally.

Brent crude LCOM6, +0.31% the global oil benchmark, rose 0.1% to $44.55 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLM6, +0.42%  were trading up 0.4% at $43.36 a barrel.

On Friday, prices were up after a volatile week that saw sharp moves in either direction. Both benchmarks lost more than 2% on Thursday but are up for the week, with WTI gaining around 8% and Brent up around 4%.

“It is a very volatile market at the moment, and it will stay this way for a while,” said Vyanne Lai, a commodity analyst at National Australia Bank.

“It is a very volatile market at the moment, and it will stay this way for a while.”
Vyanne Lai, National Australia Bank 

Oil prices rose despite a failed effort by major producers to clinch a deal to limit their output on Sunday. Instead, a series of production disruptions in Kuwait, Nigeria and Venezuela added to bullish sentiment that has seen oil rise by around 60% in the past two months.

Meanwhile, U.S. output has continued to slowly decline, falling to below 9 million barrels a day last week, according to Energy Information Administration data released Wednesday. U.S. production is down from a peak of 9.7 million last April.

Some analysts are skeptical about the sustainability of the rally given that the supply disruptions are temporary. Kuwait, for instance, where production nearly halved earlier this week due to an oil workers’ strike, is seeing output return to its normal level.

“While these adjustments deal with near-term surpluses through oil supply disruptions…they do not address the longer-term supply problems of excess capacity,” Jeffrey Currie of Goldman Sachs said in a note to clients. “We believe the current decline in U.S. oil production is still insufficient to offset low-cost supply growth such as Iran, particularly should disruptions in Iraq, Nigeria and Venezuela reverse.”

Later in the day, Baker Hughes Inc. BHI, -0.66%  will release the latest U.S. oil rig count numbers, viewed as a rough proxy for activity in the industry. Last week, Baker Hughes said the number of rigs drilling for oil fell by three to 351. There are now about 73% fewer rigs, from a peak of 1,609 in October 2014.

Oil prices fell on Thursday after European Central Bank President Mario Draghi said European interest rates would remain at current or lower levels for an extended period. His comments sparked a rally in the dollar, as they were interpreted by the market that further stimulus measures would be forthcoming.

Read: Draghi plays defense as ECB faces political assault

The U.S. dollar continued higher on Friday, particularly against the yen USDJPY, +1.12% The greenback shot as high as ¥110.75 after speculation of negative loan rates from the Bank of Japan ahead of next week’s monetary policy meeting.

Nymex reformulated gasoline blendstock RBK6, -0.01%  — the benchmark gasoline contract — slipped 0.1% to $1.52 a gallon. ICE gasoil changed hands at $390.75 a metric ton, down $2.5 from the previous settlement.

Source:  MarketWatch