Published: Tue, July 04, 2017
Finance | By Kristine Clayton

Oil is rallying as it rebounds from last week's 10-month lows

Oil is rallying as it rebounds from last week's 10-month lows

Brent crude, the global oil benchmark, rose over 7% last week while West Texas Intermediate, the US gauge, gained 6.5%, with both benchmarks pushed higher by data showing the first decline in USA oil-drilling activity since January. West Texas Intermediate, the US benchmark for the price of oil, was up 3.1 percent to $46.32 per barrel.

July is usually a big month for drawdowns: Over the last five years, inventories of crude oil have dropped by an average of 2.9 million barrels per week in July, according to the U.S. Energy Information Administration.

"Oil prices received momentum from Wednesday's U.S. data and the market rejected the lows that we saw".

Bank of America Merrill Lynch forecast that United States crude oil prices would average $47 per barrel in 2017-compared to previous estimates of $52 per barrel. The bank is now expecting a price of around US$47.50 a barrel in the coming three months, down from a more optimistic US$55 a barrel.

"For example, tighter monetary policy is a cyclical headwind for oil, while a secular demand rotation into liquid petroleum gases and out of gasoline/diesel will remove support from WTI crude oil prices".

USA oil traders are hoping the sweltering days of July are also hot ones for demand, believing the new month is the last best opportunity this year to see the overhang of inventories finally subside. Does it point to decelerating US production, or is it just a blip before growth resumes again?

Crude oil has touched its highest point since June 19th, marking its consistent rise over six straight sessions.

Prices were already rebounding after official data released Wednesday showed total US crude production dropped by 100,000 barrels a day last week, though some analysts saw the fall as a temporary in the wake of a storm that passed through the Gulf of Mexico. U.S. crude oil production slid by 100,000 b/d from a week ago to 9.25 million b/d in the week to June 23, the EIA reported last week, sowing the seeds of doubt about shale's continued rebound. Hedge funds are wary of undesirable exposures after the nine month OPEC oil freeze extension that would end in March 2018. When coupled with agree cuts from non-members such as Russian Federation, that figure rises to 1.8 million barrels per day. According to market analyst expansion in shale drilling as well as a better than expected rebound in the Nigeria, Libya production figures are expected to impact the pricing significantly.

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