Oil rises as Opec producers signal optimism over market recovery

[LONDON] Oil traded at the highest price in almost two months in London as Opec ministers signaled confidence that the market can sustain its rebound.

Futures gained as much as 0.9 per cent. There's a sense of optimism in rising prices and the trend has changed over the past two weeks, Qatar's Energy Minister Mohammed bin Saleh Al Sada said on Monday. The global supply glut is smaller than a previously estimated 1.8 million barrels a day, according to Kuwait's Ali Al-Omair, the third-largest producer in the Organization of Petroleum Exporting Countries.

Oil is recovering from the lowest prices in almost six years as drillers in the US, which is pumping crude at a record pace amid a shale boom, reduced the number of active rigs to the fewest since August 2011. The market is shifting its focus to tightening supply, according to Standard Chartered Plc.

"We've seen the rig numbers, that will impact estimates going forward," David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone. "There are forecasts for lower production by the end of 2015, especially out of the US, and that's put a halt on the downtrend." Brent for April settlement climbed as much as 57 cents to US$61.97 a barrel on the London-based ICE Futures Europe exchange and was at US$61.80 at 2.08 pm Sydney time. The contract fell 12 cents to US$61.40 on Monday. The volume of all futures traded was about 47 per cent below the 100-day average.

West Texas Intermediate for March delivery was 21 cents higher than Friday's close at US$52.99 a barrel in electronic trading on the New York Mercantile Exchange. Floor trading on Monday was closed for the US Presidents' Day holiday and transactions will be booked Tuesday for settlement purposes.

Opec, which supplies about 40 per cent of the world's oil, on Feb 9 made the deepest cut in at least six years to its monthly projection for output growth from other producers, predicting the market's drop means US drillers will pump less than previously anticipated.

"Brent is near US$62 and there's a sense of optimism surrounding this issue," Qatar's Al Sada said at the annual general meeting of Mesaieed Petrochemical Holding Co.

US drillers reduced the number of rigs in service by 84 to 1,056, according to Baker Hughes Inc, an oilfield services company. Companies have idled 519 machines the past 10 weeks, a 33 per cent reduction, the data showed.

The decline in rig counts isn't enough to stop production growth, said Goldman Sachs Group Inc. Lower prices may be needed to balance the market because US output could still expand by 600,000 barrels a day in the fourth quarter compared with a year earlier, the bank said in a note on Monday.

The US oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Permian and Eagle Ford in Texas and the Bakken in North Dakota. Production averaged 9.23 million barrels a day through Feb 6, the most in weekly Energy Information Administration records dating back to January 1983.

Brent has technical resistance at US$61.83 a barrel, according to data compiled by Bloomberg. That's the 23.6 per cent Fibonacci retracement of the decrease from a nine-month intraday high of US$115.71 in June to January's low of US$45.19. Sell orders tend to be clustered around chart-resistance levels.

BLOOMBERG