By Jenny W. Hsu
Crude oil prices rose in early Asia trade due to bargain hunting and a weakening U.S. dollar, but market sentiment remains cautious after data showed U.S. crude inventories made their largest gains in more than 30 years last week.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in December traded at $45.87 a barrel at 0220 GMT, up $0.53 in the Globex electronic session. January Brent crude on London's ICE Futures exchange rose $0.64 to $47.50 a barrel.
Prices were aided by a weaker dollar after the U.S. Federal Reserve kept interest rates steady. According to the WSJ Dollar Index, the dollar was last down 0.14% at 87.77. As oil is traded in dollars, a weaker dollar means less expensive oil for traders using different currencies.
Despite this, the market is still mainly steered by bears who are discouraged by the prospect of a longer period of oversupply, as the latest Energy Information Administration data showed U.S. crude inventories and production were climbing.
U.S. crude stocks surged by 14.4 million barrels in the week ended Oct. 28, marking the largest weekly climb since the EIA's recordkeeping began on this matter in 1982. That growth has intensified worries that the global overhang could be reducing at a slower pace than expected. Analysts surveyed by The Wall Street Journal had expected an increase of 1 million barrels.
Growth was mainly driven by strong imports--which averaged 9 million barrels a day last week, up by 2 million barrels from the week before, the EIA said. It added that over the past four weeks, crude-oil imports to the U.S. averaged 7.7 million barrels a day, an increase of 7% from a year earlier.
"With the seasonal refinery maintenance, it is easy to see how the backlog built up," said Stuart Ive, a client manager at OM Financial. Other analysts also noted that many of the cargoes delivered to the U.S. last week were delayed shipments due to earlier inclement weather.
What worries investors, however, is resilience in U.S. production, which rose by 18,000 barrels per day to 8.52 million barrels a day. That increase underscores the unparalleled efficiency of U.S. shale producers shows that the market could remain oversaturated with unwanted barrels for longer, said Gao Jian, an energy analyst at SCI International
"This also means that U.S. shale producers are not spooked by the prices in the $45-$50 range," said Mr. Gao.
The prolonged decline in oil prices, spurred by overproduction, have dented profit margins of major oil and gas companies. Many of them have scaled back spending in the upstream sector. Even heavyweight oil producers, such as Saudi Arabia, are faced with national budget problems as revenue from exports dries up.
To alleviate the overhang of supplies, the members of the Organization of the Petroleum Exporting Countries in late September decided to curtail production by 200,000 to 700,000 barrels a day. The decision is expected to be ratified at the next OPEC meeting on Nov. 30. But many market participants have little faith that the final agreement will be make a material impact on global production as more countries are seeking exemptions.
Adding to jitters is Russia's vague stance on whether it will join OPEC in limiting its production. Most recent data showed Russia's oil production surged to another post-Soviet-era high in October by rising to 11.2 million barrels. It was reported that Russia's production may even edge higher in 2017 as new oil patches come online. Without Russia on board and the U.S. ramping up output, OPEC members willhave less reason to cut production, analysts say.
OPEC's November monthly oil report is scheduled to be released on Nov. 11. It will include data such as production figures by individual members and world demand growth.
Nymex reformulated gasoline blendstock for December--the benchmark gasoline contract--rose 39 points to $1.4518 a gallon, while December diesel traded at $1.4757, 92 points higher. ICE gasoil for November changed hands at $428.50 a metric ton, up $6.00 from Wednesday's settlement.
Write to Jenny W. Hsu at email@example.com
(END) Dow Jones Newswires
November 02, 2016 23:11 ET (03:11 GMT)
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