Oil advances as IEA sees price plunge curbing non-Opec supplies

[LONDON] Oil advanced, paring an eighth weekly decline, as the International Energy Agency lowered forecasts for supplies from outside Opec and said prices could recover.

West Texas Intermediate crude rose as much as 3.6 per cent in New York. The US benchmark crude grade is heading for a loss of 2.4 per cent this week, capping the longest run of weekly declines since March 1986. Non-Opec oil producers will boost output this year at a slower rate than previously forecast, aiding a recovery in crude prices, the IEA said in its monthly market report.

"The IEA report is the first serious evidence that low oil prices are rebalancing the market," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone.

"The price has probably gone down enough. We've rebounded a few times as prices have dropped and it will be interesting to see how things work out this time."

WTI for February delivery increased 95 cents, or 2.1 per cent, to US$47.20 a barrel at 10:12 a.m. on the New York Mercantile Exchange. Prices dropped to US$44.20 on Jan 13, the lowest level since April 2009. The volume of all futures traded was 22 per cent above the 100-day average for the time of day.

Brent Market Brent for March settlement rose US$1.29, or 2.7 per cent, to US$49.56 a barrel on the London-based ICE Futures Europe exchange. Volume for all futures traded was 6.7 per cent higher than the 100-day average. The February contract expired on Thursday after decreasing US$1.02 to US$47.67. The European benchmark crude traded at a US$1.75 premium to the March WTI contract.

Oil fell almost 50 per cent last year, the most since the 2008 financial crisis, as supplies swelled amid the fastest pace of US production in more than three decades and the Organization of Petroleum Exporting Countries resisted calls to cut output. Goldman Sachs Group Inc. and Societe Generale SA were among banks to reduce their price forecasts this week.

"The market is trying to consolidate here," Bill O'Grady, chief market strategist at Confluence Investment Management in St Louis, which oversees US$2.4 billion, said by phone.

"It looks like selling has been exhausted. We are probably not done yet and will probably resume selling soon."

Saudi Policy WTI tumbled 69 per cent from US$31.82 a barrel in November 1985 to US$9.75 in April 1986 when Saudi Arabia, tiring of cutting output to support prices, flooded the market. Prices didn't claw back the losses until 1990.

"The best historical analogy for what's happening is 1986," Mr O'Grady said. "It will be extraordinarily painful for non-Opec producers to lead the way to a rebalanced market."

The IEA, a Paris-based adviser to industrialized nations, lowered its non-Opec supply growth estimate by 350,000 barrels a day, the first cut since the 2015 forecast was introduced in July. Half the reduction is from Colombian output while effects on US production are so far "marginal," it said.

The slowdown in output growth will lead to a "rebalancing" of currently oversupplied global markets in the second half, reviving prices, the agency said.

Extend Losses "The market is very oversold and has been looking for signs for a pick-up," Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd, said by phone from London. "The IEA has very clearly come out and said there will be an impact from price. They've lowered Canada, Colombia production- wise, they've talked about shale as well."

WTI may extend losses next week, according to 21 of 40 analysts and traders in a Bloomberg News survey. Eleven said futures will advance and eight projected little change.

Gasoline futures for February delivery climbed 4.42 cents, or 3.4 per cent, to US$1.3436 a gallon in New York. February ultra- low sulfur diesel rose 2.23 cents, or 1.4 per cent, to US$1.6456.

Retail gasoline, averaged nationwide, slid 0.3 cent to US$2.082 a gallon yesterday, the lowest since May 2009, according to Heathrow, Florida-based AAA, the largest US motoring group.

BLOOMBERG