Oil rises after falling into bear market

NEW YORK • Oil rose amid speculation that the oversupply still weighing on global markets will diminish, even after prices fell into a bear market on Monday.

Futures gained 0.8 per cent after dropping below US$40 on Monday for the first time since April. While crude and gasoline inventories are forecast to have declined, they will remain at the highest seasonal level in at least two decades.

Still, the retreat is driven by a seasonal slowdown in US fuel demand and prices will rebound above US$50 a barrel by year-end as American shale production drops, according to Bank of America Merrill Lynch.

Oil has tumbled more than 20 per cent from its peak in June - the common definition of a bear market - halting a recovery that saw prices almost double from a 12-year low in February.

The supply glut is upsetting industry expectations, with BP, Royal Dutch Shell and Exxon Mobil Corp. reporting second-quarter earnings last week that were worse than estimated.

"What's going on right now is actually quite seasonal, we're still looking for oil to be back in the US$50-plus range heading into year-end," Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, said in a Bloomberg television interview. "Supply's already contracting and demand's still okay."

West Texas Intermediate for September delivery was at US$40.39 a barrel on the New York Mercantile Exchange, 33 US cents higher, at 12:59 p.m. London time.

Brent for October settlement rose 57 US cents to US$42.71 a barrel on the London-based ICE Futures Europe exchange.

US crude stockpiles probably dropped by 1.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration today.

Supplies rose to 521.1 million barrels through July 22, keeping them more than 100 million barrels above the five-year average.

Petrol inventories probably fell by one million barrels last week.

"The period for the market to balance out is taking longer than expected, and the market faces continuing oversupplies of crude and products as well as an increase in US oil production," Mr Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said.

Oil companies have postponed or cancelled oil exploration and development projects due to low crude prices, in turn affecting the offshore drilling industry.

Maersk Drilling said yesterday that it will cut 122 jobs in the US due to the early termination of a contract for deepwater rig Maersk Valiant.

Maersk Drilling, a unit of conglomerate AP Moller-Maersk, had announced earlier in July it would cut up to 140 jobs in Norway due to lack of work for two other rigs.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on August 03, 2016, with the headline 'Oil rises after falling into bear market'. Print Edition | Subscribe