DEMAND
Definition: An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service.
Oil Rises on Optimism For Higher Demand, Lower Supply
Demand to Increase But Non-OPEC Supply to Contract in 2015
By TIMOTHY PUKO And ESE ERHERIENE
Updated Feb. 9, 2015 3:28 p.m. ET
Oil prices rallied for a third-straight session on signs of higher demand and lower supply, including more bullish forecasts from both the Organization of the Petroleum Exporting Countries and the U.S. government.
OPEC’s new monthly oil-market report said demand for its crude will rise this year as the U.S. produces less and consumes more. It estimates that demand will grow to 29.2 million barrels a day, 100,000 more than a year ago. That reverses a forecast for a 300,000 barrel-a-day decline in demand. It also reduced non-OPEC supply growth estimates by 420,000 barrels a day.
U.S. producers have already cut the number of oil rigs in operation, which is also firing the rally, brokers and analysts said. Operators shut down another 83 last week last week. At 1,140, the number of rigs currently working is at its lowest level since December 2011, and down 29% since a record high as recently as October 2014.
The U.S. Energy Information Administration said Monday that would help slow production growth in the main seven shale plays. In its new Drilling Productivity Report, the agency forecast month-over-month production growth in March 2015 would be slower in six of the seven regions compared with March 2014—with the Utica shale as the only exception.
Light, sweet crude for March delivery, the U.S. benchmark, settled up $1.17, or 2.3%, at $52.86 a barrel on The New York Mercantile Exchange. That is the second highest price this year, putting U.S. oil up 19% from the low it set Jan. 28.
The front-month March contract for Brent crude settled up 54 cents, or 0.9%, to $58.34 a barrel on London’s ICE Futures exchange. It is the highest settlement since Dec. 26, putting the global benchmark up 25% since the low it set Jan. 13.
Both U.S. and Brent prices have climbed in seven of the past eight sessions.
Several analysts warned that neither the dwindling rig counts nor the OPEC forecast were clearly bullish for prices. But since futures dropped nearly 60% between June and late January, many traders have been looking for supply-and-demand signals to back up their sense that the steep fall has hit a bottom.
“We’re in that mode where the market is grasping at and running on anything bullish and discounting anything bearish,” said Dominick Chirichella, analyst at the Energy Management Institute.
Prices had dipped lower in overnight trading, with many analysts suggesting gains since late January can’t hold. Both Barclays PLC and Citigroup Inc. sent out notes early Monday saying that rig cuts won’t lead to production cuts, and prices will have room to fall back as storage fills up and their supplies go back on to the market.
“The recent rally in crude prices looks more like a head-fake than a sustainable turning point,” Citi analysts said.
Demand in the second-largest consumer, China, is also down, limiting price gains, said Commerzbank. China imported 6.6 million barrels a day of crude oil, a decline of 8% month-on-month. The previous month had been a record for imports, but year-over-year oil imports were also down despite low prices, a surprise, the bank said.
“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,” said Commerzbank.
Demand to Increase But Non-OPEC Supply to Contract in 2015
By TIMOTHY PUKO And ESE ERHERIENE
Updated Feb. 9, 2015 3:28 p.m. ET
Oil prices rallied for a third-straight session on signs of higher demand and lower supply, including more bullish forecasts from both the Organization of the Petroleum Exporting Countries and the U.S. government.
OPEC’s new monthly oil-market report said demand for its crude will rise this year as the U.S. produces less and consumes more. It estimates that demand will grow to 29.2 million barrels a day, 100,000 more than a year ago. That reverses a forecast for a 300,000 barrel-a-day decline in demand. It also reduced non-OPEC supply growth estimates by 420,000 barrels a day.
U.S. producers have already cut the number of oil rigs in operation, which is also firing the rally, brokers and analysts said. Operators shut down another 83 last week last week. At 1,140, the number of rigs currently working is at its lowest level since December 2011, and down 29% since a record high as recently as October 2014.
The U.S. Energy Information Administration said Monday that would help slow production growth in the main seven shale plays. In its new Drilling Productivity Report, the agency forecast month-over-month production growth in March 2015 would be slower in six of the seven regions compared with March 2014—with the Utica shale as the only exception.
Light, sweet crude for March delivery, the U.S. benchmark, settled up $1.17, or 2.3%, at $52.86 a barrel on The New York Mercantile Exchange. That is the second highest price this year, putting U.S. oil up 19% from the low it set Jan. 28.
The front-month March contract for Brent crude settled up 54 cents, or 0.9%, to $58.34 a barrel on London’s ICE Futures exchange. It is the highest settlement since Dec. 26, putting the global benchmark up 25% since the low it set Jan. 13.
Both U.S. and Brent prices have climbed in seven of the past eight sessions.
Several analysts warned that neither the dwindling rig counts nor the OPEC forecast were clearly bullish for prices. But since futures dropped nearly 60% between June and late January, many traders have been looking for supply-and-demand signals to back up their sense that the steep fall has hit a bottom.
“We’re in that mode where the market is grasping at and running on anything bullish and discounting anything bearish,” said Dominick Chirichella, analyst at the Energy Management Institute.
Prices had dipped lower in overnight trading, with many analysts suggesting gains since late January can’t hold. Both Barclays PLC and Citigroup Inc. sent out notes early Monday saying that rig cuts won’t lead to production cuts, and prices will have room to fall back as storage fills up and their supplies go back on to the market.
“The recent rally in crude prices looks more like a head-fake than a sustainable turning point,” Citi analysts said.
Demand in the second-largest consumer, China, is also down, limiting price gains, said Commerzbank. China imported 6.6 million barrels a day of crude oil, a decline of 8% month-on-month. The previous month had been a record for imports, but year-over-year oil imports were also down despite low prices, a surprise, the bank said.
“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,” said Commerzbank.
The government wants to rise the price of oil so they can have the citizens money.