Oil Prices Rally Ahead of US Data

Oil prices rose on Friday ahead of key data expected to show another reduction in U.S. drilling activity.

Crude futures have been whipsawing in recent weeks with the market weighing up signs of impending supply cuts and improving demand against indications of continuing global oversupply. Brent, the global price benchmark, is up more than 13% in February while U.S. crude is broadly flat for the month.

April-dated Brent crude recently rose 1.7% to $61.05 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, light, sweet crude futures for delivery in April traded at $49.09 a barrel, up $0.94, or 1.9%, from Thursday's settlement when it has lost 5.5%.

The latest U.S. rig-count data will be released by oil-field-services firm Baker Hughes Inc. later on Friday. Investors in recent months have been fixated on the number as an indication of eventual supply cuts. The number of rigs has fallen by more than 35% since October.

Analysts, however, caution that a reduction in the number of U.S. oil rigs doesn't immediately translate in a fall of output, which is currently running at a multiyear high of 9.3 million barrels a day.

A weaker U.S. dollar on Friday was also supportive of oil prices, traders said. As oil is priced in dollars, it becomes more attractive to holders of foreign currencies when the greenback depreciates. The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, fell 0.1% on Friday after rallying the previous day.

Oil prices, however, might still drift lower in the short-term as supply-side support to prices wanes in the weeks to come, JBC Energy said.

"Iraqi shipments for March should see a considerable lift as several February cargoes are deferred into March with plenty of vessels already in place to haul the crude. In the same vein, basically all onshore production in Libya was shut in following the sabotage of a key pipeline. Thus, it seems likely that any potential production and export volume changes will be to the upside," analysts at JBC wrote in a note.

While it revised its 2015 oil price forecast higher on the back of stronger first quarter prices, Barclays on Friday said it still expects oil to take another leg down with Brent averaging $47 a barrel in the second quarter, down from $53 in the first.

"The necessary great rebalancing of the oil market is still months away and we think that the oil price is likely to test its mid-January lows again soon," Barclays said in a report. For 2015, the bank sees Brent averaging $51 a barrel and WTI averaging $46 a barrel.

The premium of Brent crude to Nymex WTI crude is at its widest in more than a year at $12 a barrel on the back of increasing U.S. inventories, currently at an 80-year high for this time of the year.

Earlier Friday, data showed Japan's industrial production rose a better-than-expected 4.0% in January, helped by a weaker yen and rising exports, but the country's personal consumption levels remained weak.

China's official Manufacturing PMI numbers are expected over the weekend, and market observers expect it to stay below the threshold of 50--a number above 50 would indicate an expansion.

China and Japan are two of the world's biggest oil consumers but slow economic growth has affected oil demand growth in both countries.

Nymex reformulated gasoline blendstock for March--the benchmark gasoline contract--rose 1.8 points to $1.7377 a gallon, while ICE gasoil for March changed hands at $588.25 a metric ton, up $2.50 from Thursday's settlement.