Oil surges as falling US stockpiles ease glut worries

[NEW YORK] Global oil prices surged on Thursday as falling US crude stockpiles and production stirred expectations of an easing in the global supply glut.

US benchmark West Texas Intermediate for delivery in July rose US$1.74 to finish at US$60.72 a barrel on the New York Mercantile Exchange, after gaining about a dollar on Wednesday.

Brent North Sea crude for July, the global benchmark, closed at US$66.54 a barrel in London trade, a gain of US$1.51 from Wednesday's settlement.

The petroleum rally is "supported by an abiding faith that rising demand and declining US oil shale production will translate into higher prices," said Tim Evans of Citi Futures.

The oil market rallied for a second day on Wednesday's Department of Energy petroleum report that showed US crude inventories fell for the third consecutive week, by 2.7 million barrels, much more than analysts expected, and crude production slipped by 112,000 barrels a day.

"I just haven't seen anything to justify this rise. Yesterday's report was a bit bullish but not that much," said James Williams of WTRG Economics.

"People could view that as a sign that the production will drop a little bit but there are signs that some of the companies are going to start drilling again. So there shouldn't be a big drop in the US production that would justify more upwards price movements."

The rise in oil prices came despite poor manufacturing data in China, the eurozone and the United States.

"Weakness now is expected to be managed by the easy-money policies of central bankers, with growth to surge later," Mr Evans said.

"This is classic 'bad news is good news' logic, but in our view the lack of current economic acceleration means that petroleum demand growth is likely to be modest."

The Federal Reserve minutes of its April monetary policy meeting released Wednesday suggested the Fed would delay an interest rate increase that had been expected in June because of soggy US economic data.

The dollar fell on the prospect of a deferred rate hike, making dollar-priced crude more attractive for buyers using weaker currencies.

Analysts said that oil prices were also supported by geopolitical worries, including unrest in Yemen and the Islamic State jihadists' advances in Syria and Iraq.

AFP