Oil prices rise on burst in investor confidence

Oil prices rise on burst in investor confidence

Prices slumped on the news that they wouldn't cut any deeper, and USA crude futures fell 5 percent on June 7 as the nation's stockpiles unexpectedly grew.

Energy industry consulting firm Stratas Advisors said in a recent report that the market is clearly not impressed with extended production cuts proposed by the Organization of the Petroleum Exporting Countries.

Last week saw volatile trading: Oil rose almost 2% early on amid renewed diplomatic spats in the Middle East, then sank 5% on Wednesday as US crude inventories surprisingly grew the week before. Brent, the global benchmark, rose 30 cents, or 0.62%, to $48.45 a barrel on ICE Futures Europe. "We think the market's negative reaction to a one-week counter-seasonal crude inventory build of 3.3 million barrels was excessive, at least relative to its lack of positive reaction to draws amounting to 10.9 million barrels in the previous two weeks of data", Standard Chartered analysts said in a note.

"The other reason to question the cuts is that oil inventories have increased, rather than decreased", noted Bernstein. With there being no broad themes to trade at the moment, "people now tend to look at the short-term data points", said Danny Huang, lead analyst for China commodities at S&P Global. But they said the move might prove fleeting.

Despite this, Russian Energy Minister Alexander Novak said on Sunday there was no need to review the agreement on reducing oil output as it was too early to make any decisions. "Physical differentials are still under pressure and the time structure is still under pressure in Brent".

Rising oil-digging activities outside of OPEC, particularly the US, prompted UBS last week to cut its 2017 price forecast for WTI oil to $53 a barrel from $55.50. U.S. output has risen by more than 10 per cent since mid-2016, undermining Opec-led pledges to cut nearly 1.8 million bpd of production until the first quarter of 2018.

Stephen Brennock, an analyst with London oil broker PVM, said supply-side strains could "begin in earnest" during the next quarter and give support to crude oil prices.

A net eight additional oil rigs were in operation in the USA last week, putting the figure at 741, the most since April 2015.

So far, the production cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya and Nigeria, and a relentless increase in US shale oil output.

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