Oil up as International Energy Agency sees tighter supply

Oil rose up to 2 per cent on Friday, with US crude headed for a fourth week of gains, after the western world’s energy watchdog said the market may have hit bottom, although Goldman Sachs said the 50 per cent rally in under two months was “premature”.

The Paris-based International Energy Agency, which co-ordinates energy policies of industrialised nations, said US and non-OPEC crude output was beginning to fall quickly, while increases in Iranian supply had been less than dramatic.

The IEA said it believed non-OPEC output will fall by 750,000 barrels per day this year, some 25 per cent more than the 600,000 bpd it previously forecast.

Goldman Sachs remained bearish, saying in a note to clients that prices could fall sharply in coming weeks with record US inventory builds offsetting production declines in the country.

The bank said oil prices need to be low enough to ensure supply is reduced over time, projecting $39 a barrel on the average for global benchmark Brent crude in 2016, down from its previous forecast of $45.

“So now it appears the two sides of the debate are set,” said David Thompson at Washington-based commodities broker Powerhouse. “The bearish view of Goldman Sachs versus the IEA on the bullish side.”

Brent rose 36 cents, or nearly 1 per cent, to $40.41 a barrel . On the week, it rose 4 per cent, heading for a third weekly gain in a row.

US crude was up 80 cents, or 2 per cent, at $38.64 a barrel, after hitting a 2016 high at $39.02. It was up nearly 8 per cent on the week, a fourth straight week of gains.

The IEA’s forecast aside, there could be more supply disruptions, with a source telling Reuters that maintenance works will close Britain’s Buzzard oilfield in July for roughly a month. The 180,000 bpd field is the largest contributor to the Forties crude oil stream, one of four crudes which underpin Brent.

However, oil has resumed flowing from Iraq’s Kurdistan region to the Turkish port of Ceyhan, sources said, after a pipeline’s closure in mid-February removed some 600,000 bpd from the market.

The IEA expected global oil and product stocks to rise heavily through June, in the range of 1.5 million to 1.9 million bpd, but slow to 0.2 million bpd in the second half.

“There are clear signs that market forces ... are working their magic and higher-cost producers are cutting output,” it said.

– (Reuters)