MW: Crude clings to gains after OPEC predicts rebound to $70 a barrel
Oil prices continued to rise on Wednesday, staying higher after the Organization of the Petroleum Exporting Countries said prices will gradually recover in coming years.
The U.S. benchmark also strengthened on hopes of the country becoming an oil exporter again and on expectations of a decline in stockpiles.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG6, +1.38% rose 37 cents, or 1.1%, to 36.52 a barrel. February Brent crude on London’s ICE Futures exchange LCOG6, +1.36% gained 39 cents, or 1.1%, to $36.50 a barrel.
The contracts kept their gains after OPEC released its closely watched World Oil Outlook, saying it expects the price of its basket of crudes to rise to $70 a barrel in 2020 and to $95 a barrel in 2040.
The “need to develop oil production in more expensive areas will drive long-term oil prices higher,” the cartel said in its report.
Overnight, the price of West Texas Intermediate, the U.S. benchmark, rose above the price of Brent crude for the first time in years, with Brent settling at a new 52-week low. Analysts say the rising confidence in U.S. oil was partly boosted by the U.S. government’s last week decision to reverse a 40-year export ban on U.S. crude.
“For WTI, we believe that the market has gone on a buying spree as they play on the widening spreads between WTI and Brent. The market would unlikely stop until WTI-Brent spreads widen toward $0.50 for the front month,” said Daniel Ang, a Phillip Futures energy analyst.
Hopes for higher prices
The prospect of U.S. shale producers expanding into new foreign markets as the country is flushed with excess oil has raised hopes for higher prices.
The American Petroleum Institute estimates crude inventories in the U.S. likely fell by 3.6 million barrels last week. Still, at 490 million barrels, total crude inventory is at an eight-decade high, according to U.S. government data. Official figures will be released later on Wednesday.
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However, the potential additional cost of transporting U.S. oil from midcontinent by rail to costal refineries, has prompted some analysts to take a bearish view, saying it might be cheaper for foreign oil users to source oil from West Africa.
“None of the potential for exports can be realized if the numbers don’t work,” he added.
Moreover, unless there is a significant cut in output, the chronic issue of supply outstripping demand will continue to weigh on global prices well into next year, especially with additional Iranian oil returning to the market in the coming months, analysts said.
“This year has been a reflection how (the) Organization of the Petroleum Exporting Country’s strategy of creating a new global standard by scrapping production levels has not succeeded,” said Stuart Ive, a client manager at New Zealand-based OM Financial.
Looking ahead to 2016, he expects prices to remain low and demand to remain flattish due to slower industrialization and warmer weather in the northern hemisphere.
