Oil prices turned higher Tuesday morning as traders and investors anticipated that U.S. data will show that a glut of oil is continuing to shrink. U.S. crude futures recently rose 28 cents, or 0.63%, to $44.68 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 29 cents, or 0.62%, to $47.17 a barrel.
Market participants are expecting that the U.S. Energy Information Administration will report a drop in U.S. stockpiles in its weekly report, due Wednesday morning. The weekly data has become an important barometer as investors and traders watch to see whether output reductions by the Organization of the Petroleum Exporting Countries and other major producers are helping to bring down global oil inventories.
“You continue to see draws in the U.S., ratcheting up expectations that maybe the cuts are having an effect,” said Gene McGillian, research manager at Tradition Energy. “People don’t want to be too exposed below the lower-$40 mark.” Prices have stabilized after they fell 6% in the three sessions ended last week, and traded down earlier Monday on reports that Saudi Arabia pumped more oil in June.
“We’re approaching the time frame on the calendar that is a very traditional bull market. I think the market’s trying to come up with some excuse to start that cycle again,” said Donald Morton, senior vice president at Herbert J. Sims & Co., who oversees an energy trading desk. “Drillers are drilling, producers are producing — it’s coming at us in a wash, but in the short term nobody is panicking as they were.” Talk of production cuts in Libya and Nigeria have helped boost prices this week.
Both are members of OPEC but exempt from the group-led agreement to cut global output by 2%. The exemption was meant to allow their production to rebound following years of fighting between the countries’ governments and local insurgents, which blunted output. In recent months, production in those countries has risen strongly, offsetting some one-third of the cuts made so far this year by the cartel and its allies.
The output-cap exemptions for Libya and Nigeria have drawn ire from some fellow producers, and the issue is expected to be discussed when OPEC’s monitoring panel meets on July 24 in Moscow. Push back from Nigeria and Libya to continue exemptions is expected to be strong, said Tim Evans, a Citi Futures analyst. But they may “be open to some form of limits if the right financial incentive can be found.” But if the two countries were willing to simply not raise output further, it is unclear if that would help reduce the continuing global oil glut.
“The rather muted price reaction thus far highlights that there is probably little conviction out there that such a cap would actually end up being lower than current production levels,” analysts at JBC Energy wrote in a note Tuesday morning.
Gasoline futures rose 0.72 cent, or 0.48% to $1.5079 a gallon on the New York Mercantile Exchange. Diesel futures rose 1.08 cents, or 0.74%, to $1.4644 a gallon.
