Oil prices extend rally to hold above $50 per barrel

An expectation of a balancing market from OPEC and decent economic expectations from Europe helped drive a rally in crude oil prices Thursday.

Crude oil prices extend rally into second day as OPEC says it's starting to see signs of a balanced market. File photo by Monika Graff/UPI | License Photo
Crude oil prices extend rally into second day as OPEC says it’s starting to see signs of a balanced market. File photo by Monika Graff/UPI | License Photo

The price for Brent crude oil moved back over the $50 mark in Wednesday trading after a report from the U.S. Energy Information Administration confirmed industry expectations of a sizeable draw on oil inventories in the United States, the world’s leading economy. Crude oil prices dropped into the upper $40 range on signs the market was taking longer than expected to eat into the glut that led to a prolonged slump last year.

Ole Hansen, the head of commodity strategy at Saxo Bank, said in a semi-regular newsletter emailed to UPI that crude oil storage level declines came as U.S. production trends were moderating.
“U.S. crude oil production has risen by 864,000 barrels per day since last October and last week it rose for a 14th consecutive week,” he said. “While this is staggering, we are seeing signs of growth slowing with the data showing an average weekly rise of 33,000 barrels per day during the first quarter slowing to 23,000 barrels per day so far during the second.”

The slowdown could add weight to an effort led by the Organization of Petroleum Exporting Countries to balance the market through managed production declines of its own. OPEC economists, meanwhile, said in their monthly market report for May that balance was apparent.

“A large part of the excess supply overhang contained in floating storage has been reduced and the improvement in the world economy should help support oil demand,” they stated.

The price for Brent crude oil was up 1.1 percent about a half hour before the start of U.S. trading to $50.76 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 1 percent to $47.82 per barrel.

OPEC economists said the U.S. economy should grow by 2.2 percent this year, compared with a 3.3 percent rate for the global economy. Continuing the trend for April, however, the U.S. Labor Department reported first-time claims for unemployment for the week ending May 6 was down 2,000 from the previous week. Elsewhere, European economists said global growth, not counting the European Union, would strengthen to 3.7 percent this year and the region as a whole was on the road to recovery.

Pierre Moscovici, the European commissioner for economic and financial affairs, said growth was largely uneven, but improving nonetheless.

“Europe is entering its fifth consecutive year of growth, supported by accommodative monetary policies, robust business and consumer confidence and improving world trade,” he said in a statement.

Data that could be indicative of demand, however, was fluid as both OPEC and Europe left their expectations for the United States unchanged.

Oil prices about a half hour before the opening bell in New York were off their overnight peaks. In announcing a strong performance for the first quarter, Rainer Seele, the CEO of Austrian energy giant OMV, said he was nonetheless envisioning a modest ceiling for crude oil prices this year.

“For the year 2017, OMV expects the average Brent oil price to be at $55 per barrel,” he said in a statement.

By Daniel J. Graeber