Himanshu Ojha London
OIL rose more yesterday as BP said it would reduce capital expenditure, adding to cuts in investment in the sector and expectations that output would suffer and start to drain a glut.
Oil has gained more than 15 percent since Thursday after data showed the number of US drilling rigs had fallen the most in a week in nearly 30 years.
Some investors are betting a floor has formed under the market’s seven-month long rout.
BP chief executive Bob Dudley tempered expectations of lower production, however, when he said yesterday that he expected US oil output to rise until the summer of 2015 when it would flatten.
Brent crude oil futures were up 2.13 US cents at $56.88 (R652) a barrel as of 11.43am. US West Texas Intermediate futures were at $51.33 a barrel, up 1.76c.
BP announced it would cut capital expenditure by 13 percent to $20 billion this year. Last week, Chevron announced a 13 percent cut in capital expenditure to $35bn.
The announcement of capital expenditure cuts by major oil companies were helping support prices, said Michael Hewson, the chief market analyst at CMC Markets.
“We’ve seen a lot of oil companies announce significant cuts in capacity expenditure and reductions in rig counts. What you’re getting at the moment is a paring back of expectations as a result of the measures being taken,” Hewson said.
“The seeds of an oil price recovery are being sown,” Bernstein analysts said in a note, warning of downside risk to oil supply in places such as the Gulf of Mexico, the North Sea and Brazil, as companies cut costs in response to a fall of up to 60 percent in oil prices since the middle of June.
“Supply is unlikely to match expectations and demand will recover from last year’s lows,” the analysts said.
Others warned against getting too excited about falling rig counts in the US. Analysts at Morgan Stanley said the relationship between rig count and production could be deceptive. Two Opec delegates said they could not rule out oil prices dropping to as low as $30 to $35. – Reuters