Oil set for biggest monthly gain in year amid US output drop

New York/London: Oil is poised for the biggest monthly advance in a year as US production slumped to the lowest level since October 2014.

Futures are up about 20 per cent this month in New York, the largest increase since April 2015. US crude output declined for a seventh week, according to data Wednesday from the Energy Information Administration. Price gains accelerated as the dollar fell to the lowest level against its peers since May. Exxon Mobil Corp. posted its weakest quarterly profit in more than a decade.

“We are now seeing a persistent fall in US crude production, which is the key to the market moving roughly into balance during the second half of the year,” said Mike Wittner, head of oil markets at Societe Generale SA in New York. “The focus is on what we expect to happen, not the situation now, which is that there’s a hell of a lot of oil.”

Oil has rebounded after slumping to the lowest since 2003 earlier this year amid signs the global glut will ease as US output falls. While US production has slipped below 9 million barrels a day, crude stockpiles have continued to expand, climbing to the most since 1929, according to data from the EIA.

West Texas Intermediate for June delivery rose 2 cents to $46.06 (Dh169) a barrel at 10am on the New York Mercantile Exchange. The contract touched $46.78 earlier, the highest since Nov. 4. Total volume traded was 8.7 per cent below the 100-day average. Prices are up 5.3 per cent this week.

US output

Brent for June settlement slipped 35 cents, or 0.7 per cent, to $47.79 a barrel on the London-based ICE Futures Europe exchange. The contract expires Friday. The more-active July future fell 35 cents to $47.42. The global benchmark crude traded at a premium of $1.70 to WTI for June.

US output has declined almost 300,000 barrels a day from this year’s high in January, according to EIA data. Nationwide inventories have increased to 540.6 million barrels, more than 100 million barrels above the five-year average.

Factbox: Recovery or trap?

Oil’s climb above $45 a barrel is reassuring influential figures from BP Plc to the International Energy Agency that the industry is finally recovering from the worst slump in a generation. Others say the market is about to fall into the same trap as last year.

There’s a sense of deja vu at Commerzbank AG, BNP Paribas SA and UBS Group AG, who say crude’s gain of about 70 percent from a 12-year low in January resembles the recovery that took hold this time last year - only to sputter out by May as the supply glut endured. Prices will sink back towards $30 a barrel in the coming weeks, BNP and UBS warn.

“There are dangerous parallels to 2015,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “The market already appears overheated and a correction is overdue.”