New York - Oil headed for the biggest weekly gain since August, holding gains near $50 a barrel in New York on speculation that rising demand and retreating supply will whittle away the global surplus.
West Texas Intermediate futures climbed as much as 2.3 percent for a gain of 10 percent this week. A “new capital discipline” in the industry will allow oil consumption to catch up with supply, according to Gary Ross, the founder and chairman of PIRA Energy Group. Crude will advance over the next 12 months as the worst of the collapse in commodities prices is probably over, predicted Pacific Investment Management Co, which manages $15 billion in commodity assets.
Crude traded above $50 a barrel Thursday for the first time since July on signs expanding demand will trim the surplus that drove prices to the lowest level in six years. The US Federal Reserve’s minutes indicated policy makers won’t rush to lift interest rates, sending the dollar lower and making commodities priced in the US currency more attractive.
“Above $50 shows the market continues to build up positive momentum after the break out earlier in the week,” Ole Sloth Hansen, an analyst at Saxo Bank in Copenhagen, said by e-mail. “Momentum and buyers chasing the overall recovery in commodities could take it higher.”
WTI for November delivery rose as much as $1.15 to $50.58 a barrel on the New York Mercantile Exchange and was at $50.01 at 9:26 a.m. London time. The contract added $1.62 to $49.43 on Thursday. The volume of all futures traded was about 54 percent above the 100-day average.
Global demand
Brent for November settlement gained as much as 95 cents, or 1.8 percent, to $54 a barrel on the London-based ICE Futures Europe exchange. It has increased 11 percent this week, the most since March 2009. The European benchmark crude traded at a premium of $3.48 to WTI.
A key driver for rising oil prices will be the lack of spare production capacity, according to Ross, who predicted last year’s rout before turning bullish in 2015. It will take the US shale industry at least nine months to boost output after crude climbs to more profitable levels, he said at a PIRA seminar in New York on Thursday.
Producers are shelving projects and scaling back output from Arctic oilfields to Indian aluminum mills amid the weakest returns from raw materials since 1999, according to California- based Pimco. While the response may help draw a line under the rout, prices are set to remain “lower for longer” because of excess inventories, according to the firm that manages $15 billion in commodity assets.
Marginal cost
“Most prices are well into the marginal cost curve across metals and oil, and that will help to put a floor under prices here,” Pimco executive vice presidents Greg Sharenow and Nic Johnson said by e-mail.
Global demand will expand by 1.5 million barrels a day this year, more than previously forecast, Abdalla Salem El-Badri, the secretary-general of the Organization of Petroleum Exporting Countries, said in a statement to an International Monetary Fund committee this week. The market has a supply overhang of about 200 million barrels, he told an industry conference separately in London.
Sixteen of 41 traders and analysts were bullish on WTI in a Bloomberg survey on Thursday. Eleven were bearish while 14 were neutral.
BLOOMBERG