Brent oil tops $50 again on US inventories

2nd June 2016, Comments 0 comments

Brent oil prices topped $50 again on Thursday as traders reacted to signs of stronger than expected US demand and eyed OPEC's failure to agree a new output ceiling.

In late afternoon London deals, Brent North Sea crude for August delivery gained 42 cents to $50.14 per barrel.

New York's West Texas Intermediate (WTI) crude for July rose 24 cents to $49.25, compared with Wednesday's closing level.

The US government's Department of Energy reported Thursday that commercial crude inventories sank 1.4 million barrels last week.

That dashed market expectations for a heavier drop of 2.5 million barrels, but still indicated solid demand in the world's top crude consumer.

"The decline in (US) stockpiles is helping underpin prices for now -- but the supply and demand dynamics have not changed," CMC Markets analyst Michael Hewson told AFP.

"The big question is how much more upside can we potentially see."

The DoE report was published one day later than usual owing to a US public holiday on Monday.

In earlier deals, Brent had already breached the $50 mark on speculation of some form of OPEC quota deal.

However, the market was briefly pushed lower after the cartel failed to agree a new production target.

"Unsurprisingly the lack of any agreement on a change in policy or implementation of a ceiling saw prices slide back again, as once again the market bought into a false narrative," added Hewson.

OPEC decided to keep oil gushing as the recent modest price recovery eased the pressure to limit output, with Saudi Arabia saying the cartel was "very satisfied" with the market.

The OPEC kingpin's newly-appointed oil minister expressed confidence that the price recovery would continue.

"Everybody is very satisfied with the market. The market is rebalancing as we speak," Khaled al-Falih said.

Traditionally OPEC, which pumps around a third of the world's oil, has cut production to boost falling prices.

But in the most recent drop, tumbling from over $100 in 2014 to close to $25 in January, OPEC -- driven by Riyadh -- has changed tack, keeping oil flowing to maintain market share and squeeze competitors.

However, prices last week breached $50 for the first time in six months, following supply outages in Canada and also Nigeria.

OPEC itself forecast last month that chronic oversupply may ease by 2017 as a result of sliding non-OPEC production.

At the same time, the International Energy Agency predicts the stubborn global supply glut -- which sparked the vicious price collapse -- will "shrink dramatically" later this year.

Animosity between Saudi Arabia and Iran -- bitter regional OPEC rivals engaged in proxy conflicts in Syria and Yemen -- means that any output cut deal is highly unlikely.

Since Iran's 2015 nuclear deal entered into force in January and sanctions were lifted, Tehran has aggressively ramped up output, and is unwilling to stop now.

A group production target of 30 million barrels per day -- in any case flouted with ouput currently around 32 million bpd -- was abandoned at OPEC's previous gathering in December.


© 2016 AFP

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