Crude oil inches closer to $50 a barrel on lower US production

London (Oct 7)  Crude oil prices climbed on Wednesday on signs of ebbing U.S. production and increasing willingness among the major oil producers to collectively jump-start the market amid the prolonged price slump.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in November CLX5, +1.85%  jumped 94 cents, or 1.9%, to $49.47 a barrel, after briefly trading as high as $49.71. November Brent crude LCOX5, +1.85%  on London’s ICE Futures exchange rose 71 cents, or 1.4%, to $53.16 a barrel.

On Tuesday, the Energy Information Administration said in its monthly outlook that U.S. crude production fell 120,000 barrels a day in September from a month earlier. At 9 million barrels a day, it marks the lowest level since September 2014. Crude oil production is forecast to decrease through mid-next year before resuming near year-end, the report said.

The American Petroleum Institute, an industry group, also reported that U.S. crude-oil inventories are likely to have shrunk by 1.2 million barrels in the latest week. The official data by the Energy Department will be released later Wednesday. A survey by The Wall Street Journal showed U.S. oil inventories are projected to have increased by 2.5 million barrels, on average, in the week ended Oct. 2.

Oil prices have been hit hard this year as supply consistently outpaces demand. Nymex and Brent prices are down around 50% since last year. While some market observers say there are indications that prices are likely bottoming, others say it would be difficult for prices to pick up when there is still an ample amount of supply.

“The market is comforted to see there appears to be more willingness among the major oil producers in the Organization of the Petroleum Exporting Countries to work together, especially with the smaller players, but a rebalancing is still quite a distance away,” said Vyanne Lai, an energy analyst at National Australia Bank, saying given the vulnerability of the market, prices could still drop near the lower 40s at any sniff of bad news.

Since the beginning of the week, oil prices have been supported by reports that Russia, one of the top crude producers in the world, has expressed willingness to meet with nonmembers and members of the OPEC bloc to discuss market conditions. Analysts say the meeting, if happens, will likely be focused on the influx of Iranian oil back to the market once the export sanction is fully lifted, possibly later this year.

ICE gasoil for October changed hands at $492.25 a metric ton, up $6.00 from Tuesday’s settlement.

Source: MarketWatch