Oil climbs back above $45 a barrel
Oil closed above $45 a barrel in New York on Wednesday for the first time since November after U.S. crude output dropped and Federal Reserve policymakers signaled they’re open to raising interest rates in June.
Crude production fell to 8.94 million barrels a day last week, the least since October 2014 Energy Information Administration data show. Futures fell on the initial release of the report because it showed crude inventories rose. Oil extended gains after the Federal Open Market Committee omitted previous language that “global economic and financial developments continue to pose risks,” instead saying officials will “closely monitor” such developments.
“We are focused on U.S. production, which was down again,” said Cavan Yie, senior equity analyst at Manulife Asset Management in Toronto. “Production is down about 650,000 barrels from the peak, and it’s going to keep dropping because nobody is spending any money to drill new wells.”
Oil has rebounded since slumping to the lowest level since 2003 in February, amid signs the global surplus will ease as U.S. production declines.
The World Bank boosted its forecast for oil prices this year, projecting that U.S. output cuts will steepen in the second
half of 2016. Markets may rebalance by the end of the year, BP’s chief executive, Bob Dudley, said Tuesday.
West Texas Intermediate oil for June delivery increased $1.29, or 2.9 percent, to settle at $45.33 a barrel on the New York Mercantile Exchange.
Brent for June settlement rose $1.44, or 3.1 percent, to $47.18 a barrel on the London-based ICE Futures Europe exchange.
“The market seems to be focused on the change in Fed language about global risk,” said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. “They are no longer warning of possible risks, which is being taken as a positive sign.”
The Fed left its benchmark interest rate unchanged. Policymakers are weighing when to raise rates again after the first increase in almost a decade in December.
The central bank’s optimism about economic growth and inflation may renew policy divergence between a tightening Fed and central banks overseas.
“We’re in a bull market,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.6 billion. “Every pullback is being seen as a buying opportunity, which is what happens.”
Nationwide crude supplies rose 2 million barrels to 540.6 million last week, the most since 1929, Energy Information Administration data show.
Supplies at Cushing, Okla., the delivery point for WTI and the nation’s biggest oil-storage hub, climbed by 1.75 million barrels.
“Demand should exceed supply by the second half of the year at a minimum,” said Rob Thummel, a managing director and portfolio manager at Tortoise Capital Advisors who helps manage $13 billion. “There’s little margin for error, so any disruption could have a major impact.”