Oil Prices Bounce Back From Five-Month Lows

By Alison Sider, Sarah McFarlane and Jenny W. HsuFeaturesDow Jones Newswires

Crude futures bounced back from five-month lows Friday, following a week of steep losses globally as investors continue to worry about brimming crude inventories.

Even with Friday's rebound, prices have tumbled 6.3%% this week, falling to their lowest levels since November, when the Organization of the Petroleum Exporting Countries and other big oil producers agreed to cut output for six months. Most of the losses came after data on Wednesday showed a smaller-than-expected fall in U.S. oil inventories and rising production.

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"People were starting to accept that $50 was the floor, but that's changing--$50 is becoming the ceiling again," said Ric Navy, senior vice president for energy futures at RJ O'Brien & Assocites.

U.S. crude futures recently settled up 70 cents, or 1.54%, at $46.22 a barrel on the New York Mercantile Exchange. Brent crude, the global oil benchmark, rose 72 cents, or 1.49% to $49.10 a barrel on London's ICE Futures exchange.

For much of this year, production cuts by the major oil-producing nations have kept prices aloft while growing U.S. output have limited their rise, keeping oil prices buffeted within a narrow range. But prices have been swinging as investors' confidence in OPEC-led production cuts has waned.

The move higher came after a sudden 3% drop in Asian trading overnight pushed prices low enough that buyers began to re-enter the market, analysts said.

"There isn't any more selling to hold it down," said Gene McGillian, research manager at Tradition Energy.

Analysts had expected the cuts to prompt U.S. shale producers to pump more crude, but the rebound in output has surpassed expectations. U.S. production averaged 9.3 million barrels a day last week, its highest since August 2015.

"OPEC's failure to raise oil prices is fundamentally linked to their failure to bring down petroleum inventories," said analysts at brokerage Bernstein in a note. On Friday, oil-field services company Baker Hughes Inc. reported the rig count rose by 6 -- -- its 16th-straight week of increases.

At the same time, the cuts haven't made as big a dent in global inventories as intended, and expectations that production caps will be extended this month also haven't offered much support to prices.

"OPEC's failure to raise oil prices is fundamentally linked to their failure to bring down petroleum inventories," analysts at brokerage Bernstein said in a note.

The cartel aims to reduce global stockpiles to their five-year average, a goal that is only attainable if the cuts continue, industry insiders say. As such, most believe an extension is a foregone conclusion. The pressing question is for how long and who is on board.

But even as many traders and investors have lost patience waiting for OPEC's production cuts to translate into falling oil stockpiles, analysts have remained optimistic that oil supplies will tighten in the second half of the year and said this week's selloff was overdone.

"This picture does not suggest that fundamentals are markedly deteriorating and the market should be setting new lows -- quite the opposite," Credit Suisse analysts wrote in a research note. "It is too early to throw in the towel from a supply/demand perspective."

Gasoline futures rose 2.34 cents, or 1.58%, to $1.5046 a gallon. Diesel futures rose 2.43 cents, or 1.72%, to $1.4366 a gallon.

Write to Alison Sider at alison.sider@wsj.com, Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

May 05, 2017 16:08 ET (20:08 GMT)