London - Oil advanced from the highest closing price in five months after crude inventories in the US fell for the first time since January.
Futures climbed for a third day, gaining as much as 1.1 percent in London. Crude stockpiles in the world’s biggest oil consumer shrank by 3.88 million barrels last week, the first drop in four months, the Energy Information Administration reported on Wednesday. Supplies remain more than 100 million barrels above the five-year average for this time of the year.
Oil has rebounded about 50 percent from a six-year low reached in January as drillers in the US cut the number of active rigs to the fewest since September 2010, slowing output. The recovery may still falter as shale-oil companies including Chesapeake Energy Corporation lift their production outlook while others signal an increase in drilling.
“The oil market has very strong positive momentum behind it with people reading into the data what they see as bullish signs,” Eugen Weinberg, head of commodities research at Frankfurt-based Commerzbank AG, said by phone. “The current price increase is fundamentally unjustified and will only prolong the pain for producers in the long-term as the clean up of the oversupply will take longer.”
Brent for June settlement increased as much as 72 cents to $68.49 a barrel and was at $68.34 at 10:07 a.m local time on the London-based ICE Futures Europe exchange. It closed yesterday at $67.77, the highest level since December 5. Total trading volume was 30 percent above than the 100-day average for the time of day. Prices have risen 19 percent this year.
US supplies
West Texas Intermediate for June delivery was up 25 cents at $61.18 a barrel in electronic trading on the New York Mercantile Exchange. The European benchmark crude traded at a premium of $7.15 to WTI.
While US crude stockpiles declined to 487 million barrels last week, supplies remain near the highest level since 1930, based on monthly EIA records dating back to 1920. A 17th weekly gain was projected in a Bloomberg survey of analysts.
The slide in inventories was driven by higher refinery processing, “flat” crude production and reduced imports, according to Societe Generale SA. The record expansion in US inventories will end this month, analysts including Michael Wittner in New York said in an emailed report.
Production shrank by 4 000 barrels a day to 9.37 million a day for the third drop in four weeks, data from the Energy Department’s statistical arm showed. The US rig count is down 57 percent since December, Baker Hughes, an oilfield-services company, reported on May 1.
Shale producers
Shale explorer EOG Resources said on Tuesday it plans to boost drilling as soon as the market stabilises at about $65 a barrel, while Carrizo Oil & Gas Inc. and Devon Energy Corporation this week raised their full-year production outlook.
The oil price needs to stay in a range of $45 to $55 a barrel for at least another 12 months if the Organisation of Petroleum Exporting Countries wants to protect its market share against rising supplies from outside the group, Davis Hall, global head of foreign exchange and precious metals advisory at Credit Agricole Private Banking, said in an interview in Dubai on Wednesday.
“If Opec wants to protect the market for its future production, they have to get the oil price lower for longer,” he said.
In Tehran, Iranian Oil Minister Bijan Namdar Zanganeh said $70 to $75 a barrel is a suitable price for crude. The fifth-largest member of the Organisation of Petroleum Exporting Countries could start to accelerate output within 10 days if international economic sanctions are removed, he said.
Production would increase to 3.8 million barrels a day within six months and 4 million in less than a year, Zanganeh said at a news conference on Wednesday. Iran pumped 2.78 million a day in April, data compiled by Bloomberg showed.
* With assistance from Ben Sharples in Melbourne and Anthony DiPaola in Dubai
Bloomberg