Oil Prices Settle Higher After IEA Report

Oil prices climbed Thursday in a volatile session, thanks to a widely watched report from an international energy monitor that suggested the oil markets are tightening faster than some expected.

Light, sweet crude for June delivery settled up 47 cents, or 1%, to $46.70 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, climbed 48 cents, or 1%, to $48.08 a barrel on ICE Futures Europe. Oil bounced in and out of positive territory for much of the session before gaining some momentum in the afternoon.

Oil's recent rally has pushed long-term prices above $50 a barrel, which could spur more producers to sell output and keep the market well supplied, brokers and an analyst said. Markets for gasoline and diesel are also coming off their strongest two-day rally in months, making them ripe for bullish traders to cash out their gains, a broker said.

The International Energy Agency on Thursday issued a report widely seen as bullish but that also warned that global stocks are likely to keep rising through the first half of the year despite already high levels. The monthly report from the Paris-based IEA said global oil stocks would continue to increase in the first half of the year as Iran ramps up its production, adding to the nearly two years of oversupply that saw prices dropping to decade lows.

The market had been in one of its biggest downturns in a generation just before the recent rally, and many believe it is still prone to falling because oversupply has waned so little.

The IEA said the rise in Iran's oil production and exports after the lifting of international sanctions has been faster than expected. Iran increased daily oil output by 300,000 barrels in April to 3.56 million barrels a day, a level last achieved in November 2011.

Combined output of the Organization of the Petroleum Exporting Countries climbed last month to 32.76 million barrels a day, the highest since April 2008.

"The market remains awash with oil," said Norbert Ruecker, head of commodities research at Julius Baer. Recent supply "disruptions are temporary, and we believe that support to price should remain short-lived."

Production outside the oil cartel continues to decline, the IEA said, led by a falling output in the U.S. It added that recent outages in Nigeria, Ghana and Canada have exceeded 1.5 million barrels a day so far.

The International Energy Agency said global oil stocks would experience a drastic reduction in the second half of the year on the back of strong demand and falling supply by some major producers. Strong demand gains in India, China and Russia, combined with U.S. demand that set records in March, are dispelling any belief that demand might be a problem for the market, said Tim Rudderow, president of Mount Lucas Management, which oversees $1.6 billion.

"Demand is solid world-wide," he added. "Even in the U.S., we have given up on high-mileage [per gallon] cars and jumped back into our trucks and SUVs."

In the U.S., crude-oil stockpiles defied analysts' expectations by dropping 3.4 million barrels in the week ended May 6, data from the Energy Information Administration showed on Wednesday. While inventories remain near the highest levels in more than 80 years, investors are taking comfort in the steady decline in U.S. production. EIA data show that U.S. crude output fell last week to the lowest level since September 2014 to 8.8 million barrels a day.

Gasoline stockpiles also decreased by 1.2 million barrels and distillate stocks—including heating oil and diesel—by 1.6 million barrels, both about double expectations.

Summer Said and Jenny W. Hsu contributed to this article.

Write to Timothy Puko at [e-mail] and Georgi Kantchev at [e-mail]

(END) Dow Jones Newswires

May 12, 2016 15:25 ET (19:25 GMT)

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