Oil prices rise to two-week high on US output reduction

Oil prices rose for the sixth straight session on Thursday. ConocoPhillips photo.

Oil prices up slightly

Oil prices edged up just under 1 per cent on Thursday extending the rally into a sixth session after the United States Energy Information Administration reported a small reduction in US crude production.

Brent crude futures settled the day 11 cents to $47.42/barrel, after having touched a two-week high of $48.03 earlier in the day. US crude also hit a two-week peak earlier in the session at $45.45, but finished the session at $44.93/barrel.

Last week, crude prices fell to their lowest in 10 months, but have since rebounded over 5 per cent.

But, according to Reuters, it is unclear if the bearish sentiment will return due to larger-than-usual US crude and gasoline stocks.

Brokerages like Goldman Sachs and Barclays have cut their forecasts for oil prices next year. On Wednesday, Goldman cut its forecast for US crude for the next three months to $47.50/barrel from $55. Funds have also been unloading long speculative positions.

“After the steep drop in oil prices of recent weeks, I believe that especially hedge funds saw nice buying momentum and lower U.S. crude production was the trigger to act,” Hans van Cleef, senior energy economist at ABN Amro told Reuters.

Last week Tropical Storm Cindy impacted some Gulf of Mexico operations and was likely the main cause for the reduction in US output by 100,000 barrels per day (b.d) to 9.3 million b/d last week. Maintenance in Alaska is also a factor in the total US production decrease.

With Libyan crude production nearly 1 million b/d, Shell lifting the force majeure on Nigerian Bonny Light crude exports following pipeline repairs and increasing US shale oil drilling, the OPEC supply cut agreement will be tested.

“That’s going to increase pressure on OPEC cuts,” Tony Scott, managing director of analytics at BTU Analytics told Reuters. “As long as Libya and Nigeria can remain stable – Libya has ramped up several times over last couple of years and then the violence has come back.”

On Wednesday, Reuters reported participants in the OPEC deal said they are not expecting to alter the pact, but they are likely to meet in Russia next month where they may discuss further steps to balance the market.