By Jake Rudnitsky
(Bloomberg) — Oil extended three consecutive weekly gains in London as OPEC ministers signaled their confidence that the market can sustain its rebound.
Kuwait’s Oil Minister Ali Al-Omair said at a conference in Kuwait City on Monday that an oil surplus is smaller than previously estimated, while his Qatari counterpart Mohammed bin Saleh Al Sada said there is a “sense of optimism” about Brent crude prices, which traded near $62 a barrel on Tuesday.
Brent crude is back in a bull market while West Texas Intermediate is close to one on signs that supply may be curbed. U.S. drillers idled 519 rigs in the past 10 weeks, a 33 percent reduction, according to data from Baker Hughes Inc. The Organization of Petroleum Exporting Countries lowered its forecast for an oil-supply increase from countries outside the group, and the International Energy Agency said a faster economic expansion will help demand grow more quickly this year.
“The sharp reduction in the U.S. rig count is a sign that the applied medicine eventually will help the market to get rid of its oversupply,” Ole Hansen, an analyst at Saxo Bank A/S in Copenhagen, said by e-mail.
Brent for April settlement climbed as much as 94 cents to $62.34 a barrel on the London-based ICE Futures Europe exchange. The contract fell 12 cents to $61.40 on Monday. The volume of all futures traded was about 18 percent above the 100-day average.
WTI for March delivery climbed as much as 91 cents from Friday’s close to $53.69 a barrel in electronic trading on the New York Mercantile Exchange. It was trading at $52.68 at 1:39 p.m. in London. The floor session was suspended on Monday for the U.S. Presidents’ Day holiday and transactions will be booked Tuesday for settlement purposes.
OPEC, which supplies about 40 percent of the world’s oil, on Feb. 9 made the deepest cut in at least six years in its monthly projection for output growth from other producers, predicting the market’s drop means U.S. drillers will pump less than previously anticipated.
“Brent is near $62 and there’s a sense of optimism surrounding this issue,” Qatar’s Al Sada said at an annual meeting of Mesaieed Petrochemical Holding Co. in Doha.
Escalating violence in Libya, which holds Africa’s largest oil reserves, has added to supply fears. Egyptian President Abdel-Fattah El-Sisi, whose air force bombed Islamic State targets in Libya on Monday, said his country will ask the United Nations Security Council to authorize intervention in the North African nation.
Oil production, the main source of revenue in Libya, plunged to 350,000 barrels a day in January from 1.6 million barrels a day before the 2011 rebellion that toppled Muammar Qaddafi.
“Brent’s premium looks justified due to Libya concerns and recently announced capex cuts,” Michael Hewson, senior market analyst at London-based CMC Markets Plc, said by e-mail. “A general improvement in economic conditions in Europe is also helping underpin prices.”
U.S. drillers reduced the number of rigs in service by 84 to 1,056 in the week ended Feb. 13, according to Baker Hughes, an oilfield services company. The decrease in rig counts isn’t enough to stop production growth, said Goldman Sachs Group Inc. Lower prices may be needed to balance the market because U.S. output could still expand by 600,000 barrels a day in the fourth quarter, compared with a year earlier, the bank said in a note on Monday.
The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Permian and Eagle Ford in Texas and the Bakken in North Dakota. Production averaged 9.23 million barrels a day through Feb. 6, the most in weekly Energy Information Administration records dating back to January 1983.
Winter storm warnings, meaning travel will be hazardous, stretched from eastern Oklahoma to southern New Jersey, including the cities of Washington, Baltimore and St. Louis.
Brent has technical resistance at $61.83 a barrel, according to data compiled by Bloomberg. That’s the 23.6 percent Fibonacci retracement of the slide from a nine-month intraday high of $115.71 in June to January’s low of $45.19. Sell orders tend to be clustered around chart-resistance levels.
–With assistance from Ben Sharples in Melbourne.
Copyright 2015 Bloomberg.