Brent surges 5%, trading above $40 at 3-month high

Oil prices rallied again on Monday, with Brent hitting a 2016 high above $40 a barrel, after intelligence firm Genscape reported a smaller build in stockpiles at the Cushing, Oklahoma delivery hub for U.S. crude futures.

Front-month Brent crude futures rose to the highest level since early December. They were up $1.92, or nearly 5 percent, at $40.64 a barrel at 11:47 a.m. EDT (1647 GMT). In January, prices fell to levels not seen since 2003.

U.S. West Texas Intermediate (WTI) futures fetched $37.54 a barrel, up $1.62, or 4.5 percent. They were on pace for their biggest daily gain since Feb. 22, when U.S. crude prices rose on 6.2 percent.

Genscape said Cushing stockpiles rose by 670,714 barrels to reach 68.8 million during the week ended March 4, traders who saw the data said. In the previous week to Feb. 26, Genscape reported that inventories at the hub rose by more than 1 million barrels.

The gains were also driven by a rally that took Asian equities to two-month highs. U.S. energy firms also cut oil rigs for an 11th week in a row to the lowest since December 2009, as producers slashed costs.

Bets on rising Brent crude prices hit a fresh record high in the week to March 1, according to data from the InterContinental Exchange, and major OPEC producers are privately starting to talk about a new oil price equilibrium of $50 a barrel, according to New York-based consultancy PIRA.

But analysts warned the glut of physical oil could again weigh on prices.

“The past days’ oil price rally was from our perspective less related to a shift in fundamentals but a recovery of sentiment,” said Norbert Ruecker, head of commodities research with Julius Baer, adding the bounce did not yet herald a long-term recovery.

China imposed a cap on its energy consumption by 2020, marking the first time the world’s second-biggest economy has set such a target and casting doubt on its consumption growth. The National People’s Congress, or parliament, opens its annual session this week.

Technical analysts said charts showed the rally could be near its end. And others warned that rising prices raised the prospect of U.S. shale oil producers hedging their production and increasing rig counts as a result.

“We are now getting very close to where we could see the rig count ticking higher,” said Bjarne Schieldrop, chief commodities analyst with SEB in Oslo. “You’re going to have some headwinds in the oil price as soon as you see the rig count increase.”

Major OPEC producers are privately starting to talk about a new oil price equilibrium of $50 a barrel, adding to signs that the market’s long, deep rout is officially over, said Gary Ross, the founder, executive chairman and chief oil soothsayer at New York-based consultancy PIRA.

In an interview with Reuters, Ross said oil should recover to $50 a barrel by the end of the year, potentially aided by eventual supply cuts from leading producers among the Organization of the Petroleum Exporting Countries.

“While it may not be an official target price, you’ll hear them saying it. They’re trying to give the market an anchor,” said Ross, who has a decades-long history of consulting with OPEC members.

In a note to clients, Ross also pointed to the recent agreement between major OPEC members and leading non-OPEC producer Russia to “freeze” production at January levels as a factor boosting market sentiment after a brutal period when the only safe trade seemed to be sell.

Oil exports from northern Iraq fell by almost half to an average of 350,067 barrels per day (bpd) in February due to an outage of the pipeline to Turkey, the Kurdistan region’s Ministry of Natural Resources said on Monday.

The pipeline, which carries crude from fields in the Kurdish region and Kirkuk to the Mediterranean port of Ceyhan has been idle since Feb. 17 as a result of “circumstances” inside Turkey, the ministry said.

The pipeline runs through Turkey’s restive southeast, which has seen the worst violence since the 1990s after a two-year ceasefire between the government and Kurdish militants broke down last July.


Source: CNBC

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