Oil prices rebound and inch back toward 3-year high

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Oil prices advanced on Monday, adding to last week’s rally as traders welcomed data showing a weekly decline in the number of U.S. drilling rigs.

West Texas Intermediate oil for February












CLG8, +0.49%










 gained 36 cents, or 0.6%, to $61.80 a barrel on Monday, snapping back after a 0.9% loss on Friday. Brent for March












LCOH8, +0.25%










 added 22 cents, or 0.3%, to $67.85, also rebounding from a 0.7% decline on Friday.

Even with the slides in Friday’s session, the WTI and Brent still scored weekly gains of 1.7% and 1.1%, respectively, boosted by a seventh-straight drop in U.S. crude supplies and ongoing concerns over unrest in Iran. Analysts said Friday’s pullback was only natural after such a strong rally that had sent both contracts to their highest level since December 2014 on Thursday, above $62 for WTI and above $68 for Brent.

Data out on Friday further added to the overall upbeat assessment of the oil market. Weekly data from Baker Hughes












BHGE, -0.55%










 showed the number of active U.S. rigs drilling for oil unexpectedly fell by five to 742 last week. That indicates production could slow down, which usually is a positive factor for oil prices.

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Stephen Brennock, oil analyst at PVM Oil Associates, said that despite its “air of invincibility”, U.S. shale oil is now facing several headwinds that could curtail production.

“Shareholders have grown tired of the negative cash flow model that has become the norm among shale players,” he said in a note.

“Drillers are now coming under pressure to prioritize profit margins over supply growth. Accordingly, producers must balance higher production and shareholder returns which in turn may put the brakes on spending plans,” he added.

Against this backdrop of lower U.S. oil supplies and geopolitical concerns, speculative financial investors continue to bet on further price rises, with net long Brent positions climbing to a record high last week, according to Commerzbank.

This “increases the potential for correction once the factors that are currently determining prices move out of focus or disappear,” the analysts said.

In other energy products, heating oil












HOG8, +0.02%










 rose 0.2% to $2.06 a gallon, while gasoline












RBG8, +0.03%










 climbed 0.3% to $1.79 a gallon.

Natural gas












NGG18, +2.18%










 jumped 2.6% to $2.87 per million British thermal unit.



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