Oil climbs above $60 for first time this year as supply seen slowing

Bloomberg News

Oil extended its rally above $60 a barrel in London amid speculation that a decline in US drilling will slow crude output and curb a global supply glut.

Brent futures rose 3.8 per cent, capping a third weekly gain. Apache Corp said on Thursday it was cutting its oil-drilling rigs by 70 per cent as Total joined companies including BP and Royal Dutch Shell in reducing spending. Weather delays may reduce shipments from Iraqi ports by 1 million barrels a day this month, according to consultant Petromatrix.

Oil is recovering from the lowest prices in almost six years as US drillers cut the number of rigs in service to the fewest since August 2011. Crude will rebound in the second half of this year as low prices slow supply growth and stimulate demand, while the potential for Opec to support the market “should not be ignored,” according to JPMorgan Chase & Co.

“The market overreacted to the downside and now is pricing in supply risk,” Dan Flynn, a trader at Price Futures Group in Price Futures Group in Chicago, said by phone. “The market is seeking its new trading level.”

Brent for April settlement rose $2.24 to end the session at $61.52 a barrel on the London-based ICE Futures Europe exchange. It was the highest close for front-month futures since December 23. The volume of all futures traded was 42 per cent above the 100-day average at 3.03pm in New York. The March contract expired on Thursday after increasing $2.39 to $57.05.

West Texas Intermediate oil for March delivery advanced $1.57, or 3.1 percent, to settle at $52.78 a barrel on the New York Mercantile Exchange. Volume was up 47 percent from the 100-day average. The April WTI contract closed at $53.67, a $7.85 discount to April Brent.

Houston-based Apache said it will reduce its rig count by the end of this month. Explorers in the US cut the number of machines in service to 1,056 through Friday, the 10th week of decreases, according to Baker Hughes, an oilfield services company based in Houston.

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