By Christian Berthelsen and Georgi Kantchev
Oil futures soared Friday as surging markets for refined
gasoline and diesel helped drive crude higher, with traders looking
past a fall in U.S. drilling activity that was more modest than
expected.
The benchmark U.S. oil contract gained $1.59 or 3.3% to settle
at $49.76 a barrel on the New York Mercantile Exchange. The global
Brent contract rose $2.53 or 4.2% to settle at $62.58 a barrel.
Oil-field services company Baker Hughes Inc. said its count of
rigs drilling for oil in the U.S. fell by 33 this week to 986,
slipping below 1,000 for the first time since June 2011. Though
that number is down 31% from a year ago, the weekly decline fell
short of what analysts said would be necessary to have a
substantial effect. Research consultancy Ritterbusch and Associates
said the weekly count would have to fall by at least 50 to affect
the market.
Investors in recent months have been fixated on the number as an
indication of eventual supply cuts, though analysts caution a
reduction in the number of U.S. oil rigs in use doesn't immediately
translate to a fall in output, which is currently running at a
multiyear high of 9.3 million barrels a day.
Oil futures, which had been positive throughout the session,
gave back some gains after the report's release. But the market
rallied again in the last half-hour of trading, following prices
higher for refined fuel products such as gasoline and diesel.
Contracts for both products rallied Friday, in advance of their
expiration with the close of trading.
"It's expiry madness," said Phil Flynn, account executive at
wholesale brokerage Price Futures Group in Chicago. "Crude oil is
basically being supported by those products."
Oil markets have been whipsawing in recent weeks with investors
weighing signs of impending supply cuts and improving demand
against indications of continuing global oversupply. The market has
arrested the steep fall that prevailed from June to late January
but remains volatile as traders assess whether the market rout is
over. Brent, the global price benchmark, is up more than 13% in
February while U.S. crude is broadly flat for the month.
Analysts caution the relative stabilization in the market masks
weakness, with the global oversupply of oil continuing to grow and
demand coming from temporary factors such as storing for later sale
at a higher price rather than real-world use.
"The recent strength in oil prices is likely temporary and hides
huge uncertainties with respect to the fundamental balance of the
market," Barclays said in a note. Even accounting for the recent
falloff in production from Libya, the bank estimated the glut would
continue to grow at a pace of 1.2 million to 1.3 million barrels a
day.
Still, there are some emerging signs of stabilization. A Reuters
survey of shipping data and oil companies found that oil output
from the Organization of the Petroleum Exporting Countries fell in
February, as bad weather in southern Iraq delayed tanker loadings
and sailings. The estimated output of 29.92 million barrels a day
was lower than the cartel's official target of 30 million barrels a
day and the lowest level since last June, when the market collapse
began.
Oil prices might still drift lower in the short term as
supply-side support to prices wanes in the weeks to come, JBC
Energy said.
"Iraqi shipments for March should see a considerable lift as
several February cargoes are deferred into March with plenty of
vessels already in place to haul the crude. In the same vein,
basically all onshore production in Libya was shut in following the
sabotage of a key pipeline. Thus, it seems likely that any
potential production and export volume changes will be to the
upside," analysts at JBC wrote in a note.
China's official manufacturing PMI number is expected over the
weekend, and market observers expect it to stay below the threshold
of 50, indicating contraction. The data could have ripple effects
in the market next week, as China is the world's second-largest oil
consumer after the U.S. and a key driver of demand growth.
March gasoline futures rose 6 cents or 3.5% to settle at $1.7676
a gallon on the Nymex. March diesel futures rose 16.31 cents or
7.6% to settle at $2.2989 a gallon.
Write to Christian Berthelsen at christian.berthelsen@wsj.com
and Georgi Kantchev at georgi.kantchev@wsj.com
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