Crude futures rose above $35 a barrel for the first time in two months Friday, buoyed by renewed optimism that prices may have bottomed out after data showed U.S. production at its lowest level since November 2014.
The international crude benchmark blent Brent is set to end the week with a gain of more than 5 percent at just under $37 a barrel, meanwhile.
U.S. crude inventories rose to a new record of 517.98 million barrels last week, but output fell for a sixth straight week to 9.08 million barrels a day, according to data from the U.S. government’s Energy Information Administration.
That came on the same day that Russia’s energy minister Alexander Novak said that a ‘critical mass’ of oil producing nations had agreed to freeze their output at current levels. Together with the drop in U.S. output, that action could ease the glut on world markets.
Further (and mostly involuntary) cuts in U.S. output are possible in the coming months.
“The tight credit market will make it difficult for U.S. shale producers to refinance upcoming debt and we may see an accelerated decline in U.S. oil production in 2016-17,” ANZ said in a note on Friday.
Prices may get a further boost from key U.S. economic data later on Friday to give further direction, said Ben Le Brun, market analyst at Sydney’s OptionsXpress.
“A lot of traders are keeping their powder dry in front of non-farm payroll data – it’s the No.1 (indicator) in terms of crude consumers,” he said.
“Investors are a little more confident we’ve seen a bottom in oil (prices),” he added. Le Brun is forecasting oil prices will hover around $40 by the middle of this year.
A positive U.S. employment report, due at 0830 GMT on Friday, could maintain the momentum of higher oil prices, Le Brun said.
“With the recent strong US economic data, it is very unlikely that non-farm payrolls would underperform. We expect this to give markets more confidence in the U.S. economy,” Singapore’s Phillip Futures said in a note on Friday.
The decline in U.S. production will fuel a 1.5-percent drop in oil supply by non-members of oil producers’ cartel OPEC this year, the first year of non-OPEC negative supply growth since 2008, Paul Bloxham, chief Australia economist at HSBC said in a report on Friday.
HSBC, which kept its price forecasts unchanged, assumed an average Brent price of $45 a barrel this year, rising to $60 in 2017 and $75 thereafter.