Oil prices surged to a one-month high Monday as new data caused investors to question whether U.S. oil production is as resilient as many anticipated.
Oil prices have now climbed for eight consecutive sessions -- the longest rally for West Texas Intermediate, the U.S. benchmark, since a 10-session streak that ended Jan. 6, 2010. Brent hasn't experienced such a winning streak since 2012.
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On Monday, U.S. crude futures settled up $1.03, or 2.24%, at $47.07 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 91 cents, or 1.87%, to $49.68 a barrel on ICE Futures Europe.
The move higher is a sharp turnaround from last month, when U.S. crude prices hit a 10-month low and Brent fell to its lowest level since November.
Even with the recent gains, oil prices are still down more than 12% this year. Growth in U.S. output has been hampering efforts led by the Organization of the Petroleum Exporting Countries to reduce global oil inventories.
But fresh U.S. data late last week raised some investors' hopes that the resurgence of U.S. crude production may not be as unstoppable as it once seemed.
"The idea that U.S. output could grow very fast below $50 a barrel turned out to be a little bit overblown," said Paul Horsnell, head of commodities research at Standard Chartered.
The U.S. Energy Information Administration said Friday that U.S. oil production fell by 24,000 barrels a day in April, contrary to what many expected based on preliminary weekly figures. And oil-field services firm Baker Hughes Inc. reported a surprise drop in the number of oil rigs at work in the U.S. -- the first weekly decline since January.
Even though the decline was a small one -- the rig count ticked down by just two last week -- some see the drop as a sign that shale producers won't be able to keep up the relentless pace of drilling at prices below $45 a barrel.
"If prices stay low, we're going to see capex cuts. We're going to start dropping rigs," said Rob Thummel, managing director for Tortoise Capital Advisors.
Not everyone believes that shale producers are really slowing down. Much of the production decline in April came from the Gulf of Mexico, where maintenance work weighed on output.
"I think there's a decent production overhang building," said Bill Herbert, an analyst at Piper Jaffray, pointing to a growing backlog of wells that have been drilled but not yet tapped. "There's just too much capital being invested. I don't see any evidence of a more constrained U.S. production outlook. In fact, I suspect it's the opposite," he said.
And the U.S. isn't the only challenge to OPEC's efforts to work off a supply glut that has weighed on the market for three years. Output is rising in Nigeria and Libya, OPEC members that aren't bound by output quotas.
"At current output levels, OPEC will not succeed in eliminating the inventory overhang completely by year's end," analysts at Commerzbank said. "The market ignored this."
Some say the recent rally has been more technically driven than a sign of a tectonic shift. Trading has been light ahead of the July 4 holiday in the U.S. Some analysts said the rally was likely driven more by investors closing out bets on falling prices than by new bets on rising prices.
Greg Sharenow, portfolio manager at Pacific Investment Management Co., said the extreme negative sentiment that took hold of the oil market is taking a breather, but that prices are still likely to be range-bound in the near future.
"It's grinding away in an improving balance. It's not perfect, but it also isn't dire," he said.
Gasoline futures rose 2.11 cents, or 1.39%, to $1.5348 a gallon. Diesel futures rose 2.97 cents, or 2%, to $1.5128 a gallon.
Jenny W. Hsu and
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(END) Dow Jones Newswires
July 03, 2017 16:29 ET (20:29 GMT)