MW: Oil extends gains on renewed hopes output will be curbed
Oil futures extended gains Friday on hopes that major producers would agree to limit output and support prices.
Brent crude LCOJ6, +4.05% the global oil benchmark, rose $1.08, or 3%, to $36.78 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLJ6, +4.05% rose $1.10, or 3.4%, to $34.17 a barrel.
Venezuela oil Minister Eulogio Del Pino said late Thursday that four oil-producing countries, including his country, Russia, Saudi Arabia and Qatar, will meet again in mid-March to discuss efforts to stabilize the market.
Oil has been volatile over the past two weeks as investors assessed the prospects of a deal announced by the four producers that seeks to freeze future production at the January levels. However, Iran has vowed to ramp up production until its output reaches pre-sanctions level of around 4 million barrels a day, while Saudi Arabia said an outright production cut is out of the question.
“Iran has been just as clear in its intention to go ahead with planned increases. And it seems to us that a few more hours spent around a conference table are unlikely to change that,” said Tim Evans, a Citi Futures analyst.
Whether producers agree to a freeze or not, the market remains heavily oversupplied. Jason Gammel, an analyst at Jefferies, said supply currently overshoots demand by 1.3 million barrels a day.
According to the latest report of the Organization of the Petroleum Exporting Countries, the bloc’s total crude oil production in January stood at 32.34 million barrels a day, an increase of 131,000 barrels a day from December. Russia pumped crude at a record high of 10.88 million barrels a day in January.
However, Gammel said the market should rebalance through demand growth and non-OPEC production declines, which he expects to occur by the fourth quarter.
“2016 will be the first time in history that global capital spending has fallen for 2 consecutive years. Supply will respond to this low investment, and declines across most of the important non-OPEC producers, led by the U.S., should set the stage for an oil price recovery in the second half of this year,” Gammel said.
Later on Friday, traders will be looking for the latest U.S. rig count, which will be released by oil-field-services firm Baker Hughes Inc. BHI, +3.20% The measure—a rough proxy for the activity in the industry — is down 68% since October 2014.
U.S. oil production, however, hasn’t fallen by as much and has remained stable in recent months at around 9.1 million barrels a day, down from a 9.7 million barrels a day peak last April.
Nymex reformulated gasoline blendstock for April RBJ6, +1.40% —the benchmark gasoline contract—-was up 1.2% at $1.3276 a gallon.
April natural gas NGJ16, -0.62% fell 0.7% to $1.772 per million British thermal units, while April heating oil HOJ6, +3.08% rose 2.8% to $1.1155 a gallon.
