Crude futures strengthen as OPEC cuts supply forecast

New York (Platts)--9Feb2015/408 pm EST/2108 GMT

Crude futures continued rising Monday, closing higher after OPEC said it expected global supply growth to slow in 2015 as oil companies reduce spending and drill less.

NYMEX March crude led the way, as the futures contract settled $1.17 firmer at $52.86/barrel. ICE March Brent closed 54 cents higher at $58.34/b.

Front-month benchmark crude contracts on both sides of the Atlantic have ended eight of the last nine trading sessions in positive territory.

NYMEX refined products followed crude higher. March ULSD settled up 3.38 cents at $1.8729/gal. March RBOB closed 1.91 cents higher at $1.5782/gal.

In its latest monthly oil market report, OPEC slashed its previous forecast for non-OPEC supply by 400,000 b/d to 57.09 million b/d and now expects non-OPEC supply to grow just 860,000 b/d this year rather than the 1.27 million b/d it forecast a month ago.

"The main factors for the lower growth prediction in 2015 are price expectations, a declining number of active rigs in North America, a decrease in drilling permits in the US and a reduction in the 2015 spending plans of international oil companies," it said.

As a consequence, OPEC said it now expects demand for its crude to average 29.21 million b/d, which was 430,000 b/d more than forecast a month ago.

Despite the upward revision, the "call on OPEC" still does not meet the most recent estimate of actual crude output from OPEC's 12 members, which the oil producer group pegged at 30.15 million b/d in January.

OPEC calculates demand on its crude as the difference between world oil demand and non-OPEC supply.

The oil market has been fixated on the elasticity of supply to prices, as the outcome will strongly determine how much longer a global surplus lasts.

"Lots of people are looking forward, willing to ignore what remain weak near-term fundamentals with the expectation that current price levels and rig counts will affect production some point in the future," said Kyle Cooper, head of IAF Advisors.

The number of active US oil rigs has been falling. The rig count has dropped 177 since January 23, coming in at 1,140 last Friday, the biggest two-week decline on record, according to Baker Hughes data that goes back to 1987.

"While this doesn't mean we will see production dropping off anytime soon, it is still spurring on buying interest, trumping the influence of an ever-strong dollar," Schneider Electric analyst Matt Smith said in a client note.

In overnight trading, crude futures were down slightly on weak Chinese import figures. China's crude imports in January fell 0.6% year on year to 27.98 million mt, or an average 6.62 million b/d, down from a record high 7.18 million b/d in December, according to preliminary data from the General Administration of Customs released Sunday.

"Clearly the strategic reserves are now sufficiently filled following the huge purchases in the previous month," Commerzbank said in a note.

"If China were to buy less in future, this would increase the oversupply on the oil market and make it more difficult for oil prices to recover further."

--Geoffrey Craig, geoffrey.craig@platts.com
--Margaret McQuaile, margaret.mcquaile@platts.com
--Edited by Annie Siebert, ann.siebert@platts.com