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26 May 2024

Oil prices rise on lower US rig count, but glut weighs

Despite Monday's gains, analysts said that market conditions remained weak, especially as demand is slowing. (reuters)

By Reuters

Oil prices recovered on Monday following steep losses in the previous session, supported by a fall in the number of US rigs in use, but analysts said general oversupply was keeping the market weak.

US West Texas Intermediate (WTI) crude futures rose nearly half a dollar, or 1.59 per cent, from their last settlement to above $30 per barrel, trading at $30.11 at 8.43am UAE time.

International benchmark Brent was up 41 cents at $33.42 per barrel, up 1.24 per cent. Both contracts fell almost 4 per cent on Friday.

A falling rig count in the United States which is expected to lead to a decline in 2016 production helped support prices, analysts said.

“The US oil rig count continued to decline..., with a total of 26 rigs idled,” Goldman Sachs said. “The current rig count implies... annual average US production would decrease by 445,000 barrels per day yoy (year-on-year) on average in 2016,” it added.

“We expect drops in U.S. production to be the source of bullishness,” Singapore-based brokerage Phillip Futures said.

Despite Monday's gains, analysts said that market conditions remained weak, especially as demand is slowing.

"The sharp deceleration in demand growth in recent months (especially gasoline) is a key feature of our more bearish view and expectations for a longer rebalancing period," Morgan Stanley said.

"China demand looks particularly challenged with several negative trends of late," it added.

In the United States, record crude stocks of 504.1 million barrels were also weighing on markets, countering a proposed production freeze at January levels by Russia and the Organization of the Petroleum Exporting Countries (OPEC).

"Locking in countries' production near historic production highs does not change an oversupplied market," said Amos J. Hochstein, the US State Department's special envoy for international energy affairs.

Russia and Opec were both pumping oil at near-record volumes last month, with Russia reaching another post-Soviet high of 10.88 million barrels per day (bpd).

With production outpacing demand by 1 million to 2 million barrels every day, crude prices have fallen around 70 per cent since mid-2014.

Hochstein also said that Opec-member Iran would be unlikely to fix production at January levels, having been relieved of international sanctions.

"I am highly sceptical of Iran, now off of sanctions, committing to exports at sanction era lows," he said.

Iran, previously Opec's No. 2 exporter at almost 3 million bpd in 2011, wants to quickly raise its output to regain lost market share and plans to raise production by 700,000 bpd in the near future.