By Barani Krishnan
Investing.com - Oil was on track to its best month ever as crude prices were poised to deliver a gain of as high as 90% for May after having rebounded from among their lowest levels in history. The challenge will be building on those gains as producers, enticed by higher prices now, slow down on output cuts that triggered the rebound.
The latest survey of oil drilling patches by industry firm Baker Hughes on Friday showed a reduction of only 15 oil rigs this week, versus drops more than 60 per week during several weeks over 2-1/2 months.
While the oil rig count is down 68% as a whole since the week ended March 13, the rate of decline has slowed in recent weeks, indicating that drillers were holding back on cuts as the surge in crude prices lure them to put out more barrels in return for more cash.
Also, weekly balances on U.S. crude tracked by the Energy Information Administration showed the biggest rise in stockpiles last week since the end of May.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, was up 45 cents, or 1.3%, at $34.16 per barrel by 2:11 PM ET (18:11 GMT), erasing early weakness in the session that pushed WTI to as low as $32.26 at one point.
Brent, the London-traded global benchmark for oil, rose by 56 cents, or 1.6%, to $36.59. The session low for Brent was $34.83.
For May, WTI was up 75% while Brent rose 90%. Both benchmarks are still down by nearly 45% on the year, as crude markets struggle to regain the demand loss of up to 30% experienced during the height of the coronavirus pandemic.
Much of the crude rally in May was driven by cuts in oil rigs and well shut-ins by U.S. drillers responding to the collapse in fuel demand, which drove WTI to sub-zero prices at one point.
Larger production cuts by OPEC, which aims to remove 9.7 million barrels per day from global output, has also helped. A Reuters survey on Friday indicated that the cartel and its allies have made good on nearly three-quarters of the cuts by May itself, slashing almost 6 million barrels daily.
Even so, some analysts said the market was still some way off to achieving normalcy, and prices appeared frothy after four weeks of nearly non-stop gains.
“I am struggling to get excited about anything lately (as are many of my clients),” ICAP (LON:NXGN) crude futures broker Scott Shelton wrote in the daily oil note circulated from the Durham, N.C. office of the brokerage.
“It’s been a good run for a lot of people who are now apparently sidelined and waiting for a mistake before getting involved again,” Shelton added. “This lack of interest strikes me as one of the reasons why there is a great deal of randomness in the flat price as of late in oil and that may continue in the near term.”