Monday, June 12, 2017

Oil Prices Driven Up By Futures Bets, But Market Remains Bloated

By Henning Gloystein
Reuters
June 12, 2017

Oil prices rose early on Monday as futures traders bet the market may have bottomed after a recent steep fall, even as physical markets remain bloated by oversupply, especially from a relentless rise in U.S. drilling.

Brent crude futures were trading at $48.44 per barrel, up 29 cents, or 0.6, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $46.09 per barrel, up 26 cents, or 0.6 percent.

Traders said that the price rises came on the back of speculative traders upping their investment into crude futures, by taking on large volumes of long positions, which would profit from a further price rise.

The rise in new long positions comes after Brent and WTI crude futures have fallen by around 10 percent below their opening levels on May 25, when an OPEC-led policy to cut oil output was extended to cover the first quarter of 2018 instead of expiring this June.

While the financial market seems to have some confidence that prices may have bottomed out, the physical market remains bloated, especially due to a rise in U.S. drilling for new oil production.

U.S. energy firms added eight oil rigs in the week to June 9, bringing the total count up to 741, the most since April 2015, energy services firm Baker Hughes Inc BHI.N said on Friday.

This ongoing drive to find new oil has driven up U.S. output by more than 10 percent since mid-2016, to over 9.3 million bpd, a figure the U.S. Energy Information Administration (EIA) says will likely rise above 10 million bpd by next year, challenging top exporter Saudi Arabia.

Soaring U.S. output threatens to undermine an effort led by the Organization of the Petroleum Exporting Countries (OPEC) to cut almost 1.8 million bpd of production until the first quarter of 2018 in order to tighten markets and prop up prices.


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