Oil prices hit 7-month high as supply glut eases

An employee holding a gas pump in central Seoul.
An employee holding a gas pump in central Seoul.PHOTO: REUTERS

Crude inventories expected to decline after output cuts, unforeseen disruptions

HONG KONG/LONDON • Oil prices advanced to a seven-month high yesterday, supported by supply drops in Nigeria, Canada and other producers that are eroding a persistent glut.

Nigerian oil output has been cut by almost 40 per cent, the government said.

In Canada, the sudden movement of a wildfire prompted the evacuation of some 4,000 people from work camps outside the oil hub of Fort McMurray.

Futures climbed as much as 1.5 per cent in New York after rising 3.3 per cent on Monday.

Crude inventories in the United States, at a record high last month, are expected to decline, which would support the view that excess supply is easing.

US inventories are seen falling by 3.5 million barrels, the first two-week decrease since September, according to a Bloomberg survey ahead of the release of data from the US Energy Information Administration today.

Oil has advanced more than 80 per cent since slumping to the lowest in 12 years earlier this year, amid signs that the global glut will ease as US production declines.

"Globally, there are still a lot of supply disruptions and this comes on top of natural declines," said Mr Olivier Jakob, an oil analyst at Petromatrix. "It does bring forward the expected rebalancing in the second half."

Besides unplanned disruptions, supply from non-Opec (Organisation of the Petroleum Exporting Countries) members is expected by the International Energy Agency and other forecasters to fall this year and output in some Opec nations such as Venezuela is suffering because of a cash crunch.

"The longer these outages last, the quicker the pace of rebalancing," said Ms Amrita Sen, chief oil analyst at consultants Energy Aspects in London. "Persistent crude stock draws will begin by the end of the second quarter."

West Texas Intermediate for June delivery rose as much as 70 cents to US$48.42 a barrel on the New York Mercantile Exchange, before closing at US$47.72 on Monday, the highest close since Nov 3.

Brent for July settlement added as much as 50 cents, or 1 per cent, to US$49.47 a barrel on the London-based ICE Futures Europe exchange yesterday, after rising 2.4 per cent on Monday.

Oil is still only half its level of mid-2014, when concern about excess supply prompted prices to begin a decline from over US$100, and high inventories have limited the response of prices to the supply disruptions.

Still, the disruptions this week triggered a U-turn in the oil market outlook of Goldman Sachs. The bank, which had been warning of a risk of US$20 oil, now sees US crude trading as high as US$50 in the second half of 2016.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on May 18, 2016, with the headline 'Oil prices hit 7-month high as supply glut eases'. Print Edition | Subscribe