Oil Prices Rally To Third Week Highest At $44.98

Oil prices rose yesterday and notched their third straight week of gains as market sentiment turned more upbeat, amid signs that a persistent global supply glut may be easing.

The rise in oil prices in Asian trade is said to have set crude futures on course for solid weekly gains, despite ongoing oversupply in international benchmark

Nigeria’s Brent crude futures LCOc1 were trading at $44.98 per barrel at 0418 GMT, up 45 cents or 1 percent from their last settlement, while U.S. West Texas Intermediate (WTI) crude was up 50 cents or 1.2 per cent at $43.68 a barrel.

Brent has risen about 4.5 per cent so far this week and WTI 8 percent, putting the contracts on track for a solid price rally.

The increase  in oil prices signposts a bright future for Nigeria’s 2016 budget which was anchored on the benchmark of $38 per barrel.

According to Reuters, the current price increase is more than two-thirds since its 2016 lows between January and February. Traders said that sentiment in the entire commodity complex had turned more confident, with new cash being put into the market by investors, lifting prices.

Another factor has been producers taking advantage of higher prices by locking in production. “We would expect producers in the U.S. taking every opportunity to aggressively hedge as soon as there is opportunity when oil prices recover for short periods of time,” French investment bank Natixis said.

Falling output, especially in the United States, where many producers are shutting down following an up to 70 per cent price rout since 2014, is also helping to lift the market

The rally was limited by profit taking ahead of the weekend, brokers said.

Brent has surged 4.5 percent this week and U.S. crude 8.4 percent as both benchmarks notched a third week of gains. Crude is up more than two-thirds since its 2016 lows between January and February.

Traders also pointed to strong crude imports to China in March as supporting prices.

Still, some analysts warned that the oil market was still far from balancing supply and demand.

“While this recent rally has the potential to run further to the upside … we believe that it is not yet driven by a sustainable shift in fundamentals,” Goldman Sachs said in a note to clients.

The Wall Street bank maintained its view that a sustainable balancing of the market, driven by declines in U.S. shale oil production, would take place in the third quarter.

Many analysts have said they expect producers in the United States to take every opportunity to aggressively hedge by selling as soon as oil prices recover for short periods of time. This would have a tendency to pressure prices in later months, which could in turn limit front-month gains.

Sure enough, EOG Resources placed hedges for nearly 10 million barrels of crude oil in the first quarter through June 30, according to a regulatory filing this week.

Falling output, especially in the United States, where many producers have reeled from an up to 70 percent oil price rout since mid-2014, has helped to lift the market.

U.S. energy firms cut oil rigs for a fifth week in a row to the lowest level since November 2009, oil services company Baker Hughes said on Friday.

French investment bank Natixis said it expected U.S. oil production to drop by at least 500,000 to 600,000 barrels per day (bpd) this year, compared with 2015, and by another 500,000 bpd in 2017.

Despite the recent rally, oil markets remain oversupplied as between 1 million and 2 million barrels of crude are being pumped out of the ground every day in excess of demand, leaving storage tanks around the world filled to the brim with unsold fuel.

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