U.S. Oil Prices Rise to 2015 High

U.S. Oil Prices Rise to 2015 High
Crude gains on expectations that growing U.S. production and stockpiles are near their peaks
A manifold system is used to direct oil around the Enbridge Inc. Cushing storage terminal, Oklahoma, U.S. Investors are awaiting U.S. oil supply data

A manifold system is used to direct oil around the Enbridge Inc. Cushing storage terminal, Oklahoma, U.S. Investors are awaiting U.S. oil supply data. PHOTO: BLOOMBERG NEWS
By NICOLE FRIEDMAN
Updated April 7, 2015 3:40 p.m. ET
3 COMMENTS
The benchmark U.S. oil price jumped to a 2015 high on Tuesday on fresh signs that the nation’s production is on the brink of a decline.

The U.S. Energy Information Administration said Tuesday that U.S. crude-oil output, which hit a 42-year high in March, would peak in April and May before falling from June to September. The forecast comes a day after analysts at Goldman Sachs predicted peak production would come this month.

These estimates reinforce the view that the boom in U.S. oil output, which helped drive a 50% plunge in oil prices in 2014, will ease this year. That could potentially set the stage for a period of relative price stability, investors and analysts say.

Crude oil for May delivery rose 3.5% to $53.98 a barrel, the highest level since Dec. 30, on the New York Mercantile Exchange. Futures have soared 24% since hitting a six-year low in mid-March.

Brent crude, the global benchmark, climbed 1.7% to $59.10 a barrel on ICE Futures Europe.

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“You could get a point where year-end, the year-on-year growth rate in production…has basically fallen to a flat level,” said Stephen Clark, senior vice president and portfolio manager at Standard Life Investments, which oversees $383.6 billion in assets.

Mr. Clark, who manages about $2.5 billion, has invested in oil producers that he thinks are best positioned to profit amid low prices.

While a growing number of investors are becoming more bullish on oil, few expect prices to quickly bounce back to triple-digit levels, which were last seen in July 2014.

“At some point, the crude surplus will be transferred” to the market for refined fuels such as gasoline and diesel, said Alessandro Gelli, analyst at Diapason Commodities Management SA, which manages about $4 billion. Diapason has bet that gasoline prices will fall relative to Brent crude prices. “It’s a bit early, I think, for a real sustainable rally.”

Both the EIA and Goldman Sachs expect U.S. crude production to recover somewhat in the fourth quarter of the year, as oil companies continue to reap efficiency gains. The EIA expects U.S. output to average 9.2 million barrels a day this year, up from 8.7 million barrels a day in 2014. Last month, U.S. oil output averaged 9.33 million barrels a day.

A decline or leveling-off of production would come after oil companies cut spending and pulled back on new drilling in response to oil prices. The number of rigs drilling for oil in the U.S. has fallen more than 45% since the start of the year.

Investors are watching closely for signs that U.S. output is falling and stockpiles are starting to shrink, or even that production and inventories are growing more slowly. Oil stockpiles in the U.S. are near their highest level in about 80 years.

“It’s more the rate of change than the numbers,” said Mark Benigno, co-director of energy trading at INTL FCStone Inc. “When can you start expecting a [drop in the] rate of change of production? It’s not too far off.”

The EIA is due to release inventory and production data for the week ended April 3 on Wednesday. Analysts surveyed by The Wall Street Journal expect the agency to report that oil inventories rose by 3.4 million barrels in the week to a new weekly record high. The American Petroleum Institute, an industry group, is scheduled to release its inventory data for the same period later on Tuesday.

“The question is going to become, ‘Did we really begin to see the tide turning as far as production and demand in the past couple of weeks?’” said Gene McGillian, senior analyst at Tradition Energy. “It seems like the buyers have returned.”

Gasoline futures on Tuesday rose 1% to $1.8609 a gallon. Diesel futures increased 1.1% to $1.7838 a gallon.

Write to Nicole Friedman at nicole.friedman@wsj.com