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Oil Rises More Than 2%, Extending Q1 Run on OPEC Cuts, China Demand

Published 04/01/2019, 12:03 PM
Updated 04/01/2019, 02:43 PM
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By Barani Krishnan

Investing.com - Run bear, run.

Pumped up from its phenomenal 33% gain in the first quarter, oil tacked on almost 2% more in Monday's session as oil bulls lurched headlong into April's trade amid data suggesting deeper production cuts by OPEC and stronger-than-expected Chinese demand for energy.

New York-traded West Texas Intermediate crude settled up $1.45, or 2.4%, at $61.59 per barrel. It hit a near-five-month high of $61.72 earlier. For the Jan. 1 to March 31 period, WTI rose 33%. The last time it gained more for a quarter was during Q2 2009, when it rose about 40%.

London-traded Brent crude, the global oil benchmark, was up $1.48, or 2.2%, at $69.06 per barrel by 2:41 PM ET (18:41 GMT). It rose 26% for the first quarter, also its best gain in 10 years.

"Oil prices are heating up ahead of the summer driving season as global demand expectations for oil are rising while global oil production is falling," said Phil Flynn, senior energy analyst at The Price Futures Group in Chicago.

"Just when you thought it was safe to go to the gas pump, we get a report that China’s stimulus is starting to kick in, as U.S. weekly oil production numbers get downgraded and the U.S. rig count falls," Flynn said. "The possibility of a supply squeeze is rising, and so is the price of oil."

After three straight months of contraction, manufacturing activity in China expanded more than expected in March, easing concern over a slowdown in the world’s second-largest economy, data showed. China’s Caixin manufacturing purchasing managers’ index rose to 50.8 from 49.9, above the 50-mark that separates expansion from contraction and its strongest level since last August.

Data on Friday also showed a sixth-straight weekly fall in the U.S. oil rig count to a near-one-year low, suggesting lower production ahead. Goldman Sachs (NYSE:GS) said in an analysis last week that U.S. oil drillers were under-hedging their production for 2020 despite this year's rally. That could challenge the U.S. government's optimistic forecasts for a record production above 13 million barrels per day by 2020.

Despite pressure from U.S. President Donald Trump to keep oil supplies flowing, Saudi Arabia, which wants crude at $70 per barrel and above, slashed production to a four-year low of 9.82 million bpd in March, according to a Bloomberg survey of officials, analysts and ship-tracking data. Output from OPEC's 14 members fell for a fourth-straight month in March, sliding by 295,000 bpd to 30.385 million.

Yet, not all are buying the bullish oil narrative beyond a couple of weeks.

"I think this week could be a strong one for oil as there is physical support and also there could be some roll-yield chasing coming from the index world as the more dynamic style indexes have been long more in the forwards and may look to join the buying this week," said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.

"We could also see additional CTA buying as they have a ton of bullets to fire overall," Shelton said. "This means more backwardation as the forward WTI and Brent story remains benign. Bottom line to me is that the flows look positive this week and next, but I am not sure we will find another buyer after that."

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