Oil prices flipped to gains Thursday with growing momentum behind the International Energy Agency's prediction of higher global demand.
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In its closely watched monthly oil market report, the IEA said it now expects global demand to rise by 1.5% this year to 98 million barrels a day, driven in part by rising consumption in Germany and the U.S. during the second quarter. The Paris-based adviser to governments and companies raised its 2017 demand forecast by 100,000 barrels a day, compared with a previous estimate last month.
Oil prices initially fell after the IEA report, with investors focused on rising production in June from the Organization of the Petroleum Exporting Countries, which hit its highest level of the year at 32.6 million barrels a day. But there are signs that demand, growing faster than expected, will call for all of that oil and ease oversupply that has lingered for about three years, analysts said.
Light, sweet crude for August delivery recently gained 39 cents, or 0.9%, to $45.88 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 41 cents, or 0.9%, to $48.15 a barrel on ICE Futures Europe. They had both traded at losses, about $1 lower than their recent price, before surging to gains around the traditional start of U.S. trading hours.
Thursday's move puts U.S. oil on course for a four-session winning streak and 13 sessions of gains in the last 15. The rally hasn't put oil anywhere near the $60-mark that many had predicted it would be on its way to by now, but it does show that investors may believe the 11-month lows the market hit at $42.53 in June are about the bottom, said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston.
"I think maybe there's more confidence of staying in the $40s," he said. "There's support under the market where we are now."
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U.S. producers need oil at $55 a barrel to keep growing production and stay profitable, but would need to improve their efficiency to do it at $45, analysts at Goldman Sachs Group Inc. said Thursday. The U.S. Energy Information Administration on Tuesday lowered its production forecast for 2018 to 9.9 million barrels a day, slightly down from around 10 million before.
The IEA on Thursday also called the change in demand "a dramatic acceleration." Demand accelerated in the second quarter, growing to 97.4 million barrels a day -- 1.5 million barrels a day faster than in the second quarter of 2016. It warned that while real-time data doesn't show this causing oil stockpiles to shrink, that may change and show they are as new data comes in.
The market has already been rising in part from falling stockpiles in the U.S. On Wednesday the EIA reported the 11th decline in U.S. crude stockpiles in just 13 weeks. At 7.6 million barrels, the drawdown for the week that ended Friday was the largest since September, according to the EIA.
"We have now witnessed two weeks in a row of massive U.S. inventory draws," analysts at Piper Jaffray Cos.' Simmons & Co. International, wrote in a note to clients Thursday morning. They said the rising global demand, and its outperformance of recent expectations should be the primary takeaway from the IEA report.
The downside is that there are production gains in Libya and Nigeria, which aren't subject to an OPEC-led agreement to cut about 2% of the world's daily output. Production from those two countries, in particular, has surged in recent months, undermining the attempted cutbacks and helping to derail widespread predictions of a rally.
OPEC members have considered new output caps on Nigeria and Libya. Without some production restraints on these two nations, oil prices have little chance of returning to the $50 zone in the near term, said Stuart Ive of OM Financial.
Gasoline futures recently gained 0.5% to $1.5279 a gallon. Diesel futures lost 0.6% to $1.4826 a gallon.
--Christopher Alessi, Justin Yang and Jenny W. Hsu contributed to this article.
Write to Timothy Puko at email@example.com
(END) Dow Jones Newswires
July 13, 2017 11:40 ET (15:40 GMT)