Oil Extends Gains on U.S. Output Expectations

Oil Extends Gains on U.S. Output Expectations

Analysts caution reduction in U. S.output won’t be enough to offset the global oil glut

oil

Oil drilling rigs stacking in Texas on Jan. 26. The number of U.S. oil drilling rigs has declined for 18 straight weeks and is at a level last seen in December 2010. PHOTO: AO

By GEORGI KANTCHEV/WSJ

Updated April 14, 2015 7:00 a.m. ET

LONDON—Oil prices extended their gains Tuesday on expectations that the U.S. oil output, which has fueled the global oversupply of crude, may soon start falling.

Analysts cautioned, however, that the reduction won’t be enough to offset the global oil glut. Crude oil has halved in value since last summer on the back of surging supply and tepid demand. But prices have been moving largely sideways this year on signs of impending production cuts as companies have responded to the low prices with large spending reductions.

Brent crude, the global price benchmark, rose 0.3% to $58.11 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, light, sweet crude futures for delivery in May traded at $52.30 a barrel, up 0.8% from Monday’s settlement.

The U.S. Energy Information Administration estimated on Monday total crude-oil production from seven key shale regions in the country will likely decline by 57,000 barrels a day in May from April.

Standard Chartered said there has been some complacency in the market reaction to the collapse in U.S. drilling and the deceleration in U.S. oil output has been greater than the market is currently pricing in.

“We believe that U.S. shale oil output is already falling, and that current rig counts imply that the month-on-month decline will exceed 70,000 barrels a day by June,” Paul Horsnell, head of commodities research at Standard Chartered, said in a report.

However, the expected fall in U.S. production won’t be enough to balance the oversupplied global market, analysts at Commerzbank said.

“Compared to the current oversupply of up to two million barrels per day…this would be but a drop in the ocean,” the bank said in a note.

Market participants expect a few more weeks of rising U.S. oil inventories as supply continues to outpace demand, keeping U.S. oil prices under pressure. Later Tuesday, the American Petroleum Institute, an industry group, will publish its weekly oil inventory data, followed by the official EIA data on Wednesday.

Meanwhile, the Organization of the Petroleum Exporting Countries reiterated in its monthly bulletin on Monday that it isn’t willing to cut production unless producers outside the oil cartel also cut. OPEC decided in November to keep its output target stabledespite the global oil glut.

“The latest OPEC Bulletin sits out in very clear terms the position of the organization as far as controlling production is concerned,” David Hufton of PVM brokerage said in a note. While there have been calls in recent months from various OPEC members to cut production, “the market clearly currently sees no chance of that happening,” Mr. Hufton said.

Nymex reformulated gasoline blendstock for May—the benchmark gasoline contract—rose 0.9% to $1.8191 a gallon, while ICE gas oil for May changed hands at $546.75 a metric ton, up $4 from Monday’s settlement.

—Eric Yep contributed to this article.

Write to Georgi Kantchev at georgi.kantchev@wsj.com

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