Oil prices up in early trading Tuesday
Oil prices rose 2 per cent on Tuesday thanks to a weaker US dollar, short covering and analysts expectations that there will be a drop in US crude inventories for the third consecutive week.
According to Reuters, oil prices may have also been helped by comments made by the chief executive of Pioneer Natural Resources. Tim Dove said Saudi Arabia will likely move to increase oil prices to help strengthen its own national finances.
“I personally believe (the oil price) where we are right now is not sustainable. It comes in the form of two words: Saudi Arabia. They cannot have a scenario, which is $43 or $44 (per barrel) oil, and sustain their national budgets,” Dove said at the JPMorgan Energy Equity Investor Conference in New York.
Pioneer plans to keep drilling new wells, according to Dove.
“We’re not going to not drill, because this very well may be the time where the well costs are as low as they’re ever going to be,” he told Reuters.
Pioneer is one of the largest oil producers in the prolific Permian Basin of West Texas and New Mexico.
Brent crude futures were up more than $1 to a session high of $46.84/barrel as of 11:49 EDT after touching a one-week high during the session of $47.06. US WTI crude futures were up 92 cents to $44.30/barrel.
After spending much of June in negative territory, the gains mean the market is up slightly so far this week. Reuters reports that with the end of the quarter approaching, brokers say investors are covering short positions.
In a note, Tim Evans, Citi Futures’ energy futures specialist wrote the oil price boost was “a technical correction after the declines of the past five weeks” that was helped by a weaker dollar and forecasts of reductions in US crude inventories.
The market now waits for the release of data from the American Petroleum Institute later on Tuesday on US crude inventories. The US Energy Information Administration releases its weekly crude stocks data on Wednesday morning.
The US dollar fell 0.1 per cent against a basket of six major currencies, prior to a speech in London by US Federal Reserve Chair Janet Yellen.
Reuters reports Commerzbank said in a research note “Short-term financial investors also significantly scaled back their net long positions in Brent on the ICE last week … and find themselves at their lowest level in a year and a half.”
“Short positions have soared to a new record high, having increased more than four-fold since the beginning of the year.”
Efforts by OPEC to reduce the world’s stubborn oil glut have been sidetracked by increasing production in the US, Nigeria and Libya.
OPEC members Libya and Nigeria were exempted from the cuts due to years of turmoil and US production has increased by about 10 per cent since last year.
Head of the world’s largest independent oil trader Vito, Ian Taylor, told Reuters that he expects Brent prices to stay in the $40-$55/barrel range for the coming few quarters.
“In the third quarter we should draw (down stocks), but we are unsure about the fourth quarter as U.S. production is likely to have a year-end spurt,” Taylor added.
Since announcing the OPEC supply agreement would be extended to next March, OPEC has shied away from making deeper cuts to tackle the crude glut, but the cartel may discuss changes to the pact to support the market at a meeting in Russia in July.
OPEC may face further roadblocks in their plan to reduce the crude glut. Bank of America-Merrill Lynch analysts say crude demand is not growing fast enough to absorb extra output and Asian oil imports are flagging.
