Oil prices added to last week's big gains, hitting fresh two-month highs amid further signs that U.S. oil production is slowing down.
But some analysts caution the rally might lose steam soon.
Crude rose every day last week, in the process logging 2017's biggest weekly gain. The move was started by renewed commitment from the Organization of the Petroleum Exporting Countries to hold down output and exports. Following that was upbeat U.S. readings on the inventory, production and drilling-activity fronts.
"Fundamentals continue to suggest a more-balanced crude-oil market," said ANZ. The bank also noted the front end of the oil-market curve has shifted into backwardation--when prices for nearby delivery are higher than those in the future. That's a sign that immediate demand is healthy and the market is tightening.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in September recently traded up 0.4% at $49.90 a barrel in the Globex electronic session. September Brent crude on London's ICE Futures exchange gained 0.6% to $52.84. Meanwhile, Nymex September diesel gained 0.8% to $1.6538 a gallon, reformulated gasoline blendstock rose 1% to $1.6626 and August ICE gasoil jumped 1.7% to $493 per metric ton.
The ongoing pullback in U.S. oil supplies and drilling activity has beefed up views that the shale boom, the main culprit of the soft oil prices of the past three years, is plateauing. According to oilfield-service giant Baker Hughes, the number of active oil rigs in the U.S. rose by two last week after a decline of one in the previous week. Meanwhile, government data show U.S. oil inventories have dropped nearly 10% since their latest record high in March.
Many market watchers says the prolonged prices have taken a toll on some oil companies, in particularly those with an upstream business. Even though OPEC and Russia have been cutting production all year, oil prices have fallen. In that environment, some oil companies--such as Anadarko Petroleum Corp.--have announced cuts to 2017 spending plans.
However, as many U.S. shale producers improved their efficiency through advanced technology, some analysts say the current price rally may not last because "American producers have shown how elastic they can be," said Ric Spooner, the chief analyst at CMC Markets.
As such, prices are liable to range from the mid-$40s to low-$50s because prices above there would encourage more U.S. oil drilling and hinder the global market from further tightening.
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(END) Dow Jones Newswires
July 31, 2017 00:15 ET (04:15 GMT)