Oil Rallies in Tuesday Trade
NEW YORK (DTN) -- The nearest delivered oil futures contracts traded on the New York Mercantile Exchange moved higher at the start of regular trade on Tuesday morning, rallying on the back of a weakening dollar and bullish comments by Saudi Arabian oil officials who said that global supply and demand would rebalance by mid-2017.
Amir Nasser, chief executive of state-oil company Saudi Aramco, said he expects oil markets to rebalance by mid-2017 following production cuts by the Organization of Petroleum Exporting Countries and 11 non-OPEC oil producers, along with lower production from U.S. producers.
Nasser made those comments at the World Economic Forum in Davos, Switzerland, where he echoed sentiment expressed earlier by Saudi Energy Minister Khalid al-Falih. Al-Falih also pledged that Saudi Arabia would continue to comply with production cuts agreed to late last year.
On Nov. 30, OPEC members agreed to reduce their oil production 1.2 million bpd to a 32.5 million bpd output rate. The move was followed by a Dec. 10 accord by 11 non-OPEC oil producing countries to cut their output by 558,000 bpd during the first half of 2017. Under the OPEC quota scheme, Saudi Arabia cut its output by 486,000 bpd in January and the Kingdom is exploring plans for deeper cuts in February, possibly as much as 700,000 bpd.
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Skeptics argue the cuts won't bring a midyear supply-demand balance, pointing to OPEC's history of noncompliance with production cuts and Russia's past decisions to renege on their supply agreements.
Moreover, OPEC countries exempted from the Nov. 30 agreement such as Libya and Nigeria are expected to increase their output, while the United States' oil production is seen rising as tight oil production becomes more profitable due to the OPEC supply cuts.
Last week, the Energy Information Administration reported that U.S. crude oil production increased 176,000 bpd to a nine-month high of 8.946 million bpd during the first week of 2017. Baker Hughes Inc. on Friday reported that the number of rigs drilling for oil dropped by seven last week to 522, the first decline in 11 weeks.
After increasing by 81 rigs since the start of November, the rig count is seven rigs higher than the same week a year ago.
At 9:00 AM ET, NYMEX February West Texas Intermediate futures advanced 89cts to $53.26 bbl. The March Brent crude futures contract on the IntercontinentalExchange rose 0.81cts to $56.67 bbl, off a $56.74 one-week high.
NYMEX February ULSD futures rallied 3.61cts to $1.6875 gallon while February RBOB futures climbed 3.67cts to 484 gallon, near a $1.6490 better than one-week high on the spot continuous chart.
In currency trade, the U.S. dollar index fell to a five-week low overnight after President-elect Donald Trump said the dollar is too strong, making U.S. companies less competitive against their Chinese counterparts.
Anthony Scaramucci, Trumps senior advisor, this morning warned about the risk of a strong dollar in a speech at the Davos World Economic Forum, with China's President Xi Jinping responding by saying nobody gains from a trade-war.
George Orwel can be reached at george.orwel@dtn.com
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