Oil reached one of its longest winning streaks in years with signs of pullbacks in U.S. production leading some to claim the flagging market may have hit a turning point.
U.S. output dropped last week by 100,000 barrels a day, the sharpest one-week drop in a year that had brought almost an unrelenting string of production increases, according to government data released Wednesday. Some saw this as a sign that falling oil prices from the spring have forced U.S. producers to slow.
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That idea was reinforced Friday when oil-field services company Baker Hughes Inc. reported the number of working rigs in the country fell -- by two -- last week for the first time in nearly six months. Prices, already up for the day, surged again after the data release through the last 90 minutes of trading.
Light, sweet crude for August settled up $1.11, or 2.5%, at $46.04 a barrel on the New York Mercantile Exchange. Brent gained 50 cents, or 1.1%, to $47.92 a barrel on ICE Futures Europe.
Both are on seven-session winning streaks that brought them to their highest point since June 13. Brent's streak is the longest since June 2014. For U.S. oil, it is the longest since August.
The rebound comes at a down time in the crude markets. Fears that rising U.S. production might cancel out cutbacks from global exporters have led to several monthly losses in a row for oil prices, losing streaks that have now extended through June despite the recent gains. U.S. oil and Brent lost more than 4.7% for the month and more than 9% for the quarter. Back-to-back losses for the quarter reached around 15%, marking the worst back-to-back quarters since the period that ended in March 2016.
The recent winning streak, however, is confirmation that the worst of oil's correction is behind it, according to analysts at TD Securities in Toronto. The team, which has frequently been bullish this year, said lower prices are forcing U.S. producers to spend less and limiting their access to money, both from fewer loans and from limited opportunities to keep selling future production.
Summer driving season is also likely to increase demand in the weeks to come. And that along with the slowdown from U.S. drillers will lead to an easing glut and rising prices because about 2% of global supply is already held back by output cuts from the Organization of the Petroleum Exporting Countries, Russia and other exporters, the TD Securities analysts said.
"We're questioning whether we get those massive gains (in U.S. production) that will make the OPEC cuts moot," said Bart Melek, head of commodity strategy at TD Securities in Toronto.
The market had already been getting a boost early Friday from positioning, as traders attempt to close out or simply hold pat ahead of the weekend and July 4 holiday in the U.S., several analysts and a trader said. Money managers had spent weeks piling into bearish positions on U.S. oil, and any widespread push to close out positions could likely lead to a reversal of those bearish trades, a rush to buy back contracts that bids up prices.
"It's the end of the month, end of the quarter, end of the first half of the year, so there's a lot of book squaring taking place, and a lot of people sitting on the sidelines who don't want to mess up their books," said Donald Morton, senior vice president at Herbert J. Sims & Co.
Bearish traders switched their positions earlier this week on the U.S. production data, said Ole Hansen, head of commodity strategy at Saxo Bank. The trend could continue for weeks, with investors switching back to bullish bets that take U.S. oil toward $60 a barrel by year's end, the TD Securities analysts said.
Still, investors remain skeptical that oil prices have stabilized because fundamentals remain quite bearish. Many industry observers worry the oil glut is at risk of getting bigger as Libya and Nigeria crank up production and oil companies in the U.S. keep putting more rigs to work.
Meanwhile, demand growth globally is also clouding the outlook on crude prices. BMI Research data show that in the first quarter, U.S. fuel consumption was nearly flat compared with the same period last year, while South Korea showed smaller-than-expected growth and Japan's demand contracted by 3% on year.
"Overall the risk to our global demand outlook lies to the downside," the research firm said.
Gasoline futures gained 2.96 cents, or 2%, to $1.5152 a gallon, leading to weekly gains of 5.7% that snapped a five-week losing streak and were the biggest weekly gains since March. Prices were still down 6% for the month and 11% for the quarter.
Diesel futures rose 2.95 cents, or 2%, to $1.4755 a gallon, leading to weekly gains of 7.6% that snapped a five-week losing streak and were the biggest weekly gains in seven months. Prices were still down 2.6% for the month and 6.2% for the quarter.
--Christopher Alessi, Jenny Hsu and Justin Yang contributed to this article.
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(END) Dow Jones Newswires
June 30, 2017 16:41 ET (20:41 GMT)