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Oil rises on signs of US inventory declines, lower Saudi exports
[NEW YORK] Oil rose more than 1 per cent on Monday on signs of inventory declines in the United States and news that Saudi Arabia will limit volumes of crude to some Asian buyers in July and deepen cuts to the United States.
Saudi Arabia, the world's top oil exporter, will cut crude allocations to Asia in July to a total of about 300,000 barrels per day (bpd), deeper than in June, sources told Reuters. One source said volumes to the United States would be cut by about 35 per cent in July.
Data from market intelligence firm Genscape estimating a draw of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for US crude futures last week added to the bullish sentiment, said traders who saw the data.
Brent crude futures rose 54 US cents, or 1.1 per cent, at US$48.69 a barrel by 11:51am EDT (1551 GMT), having hit a session high of US$49.15. US West Texas Intermediate (WTI) crude futures gained 61 US cents, or 1.3 per cent, to US$46.44, having peaked at US$46.71.
Prices plunged about 5 per cent last week after data from the US Department of Energy showed a surprise increase in stockpiles. "We think the market's negative reaction to a one-week counter-seasonal crude inventory build of 3.3 million barrels was excessive, at least relative to its lack of positive reaction to draws amounting to 10.9 million barrels in the previous two weeks of data," Standard Chartered analysts said in a note. "We do not expect a repeat of the inventory increase this week; rather we see a further large inventory draw."
Some traders and analysts said the rise looked technical in nature, after WTI rallied and encouraged a similar move in the Brent market. But they said the move might prove fleeting. "When you start to approach US$45 a barrel in WTI, you're in an area where you do find some price support and I think there has been some evidence last week of investment flows coming back into crude oil," Petromatrix strategist Olivier Jakob said. "You have to be careful not to be too optimistic for now,"he said. "Physical differentials are still under pressure and the time structure is still under pressure in Brent. It's a bit premature to call for much higher oil prices."
Traders also noted the price rise came as data showed speculative traders had increased their investment in crude futures by taking on large volumes of long positions. "Oil bulls have reset for a technical bounce," said Stephen Schork, author of the Schork Report.
While financial traders have confidence in rising prices, the physical market remains under pressure, especially due to a rise in US drilling.
US drillers added eight oil rigs last week, bringing the total count to 741, the most since April 2015, energy services firm Baker Hughes Inc said on Friday. US output has risen by more than 10 per cent since mid-2016, undermining Opec-led pledges to cut almost 1.8 million bpd of production until the first quarter of 2018.