Oil heads toward 2015 highs despite ample supply

[May 07, 2015]  By Christopher Johnson

LONDON (Reuters) - Brent crude oil headed up toward 2015 highs above $68 a barrel on Thursday after official data showed the first drawdown in U.S. crude inventories since January, evidence the market there is balancing after months of heavy oversupply.

U.S. crude stocks fell 3.9 million barrels last week, the first drop in four months, the Energy Information Administration said on Wednesday.

Stronger-than-expected demand growth and a slowdown in U.S. crude supply has boosted oil prices by 50 percent from a six-year low hit in January, despite ample supply.

"While the latest draw and the recent slowdown in weekly builds in crude stocks have been seen as positive for the oil price, crude stocks remain exceedingly high," said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas.

Brent crude was up 25 cents a barrel at $68.03 by 1045 GMT (6.45 a.m. EDT). It hit a 2015 high of $69.63 on Wednesday.

U.S. crude was down 15 cents at $60.78 a barrel. The contract had rallied more than $2 to a high of $62.58 in the previous session.
 

Tamas Varga, analyst at London brokerage PVM Oil Associates, said the oil market was focusing on the rise in U.S. stocks and on civil war in Yemen, a conflict some analysts have suggested could disrupt oil production elsewhere in the Middle East Gulf.

Yemen is a tiny oil producer but lies to the south of Saudi Arabia, the world's most biggest oil exporter, and Riyadh has been leading a coalition bombing Yemeni targets.

Saudi Arabia said on Thursday all military options were being considered in its battle with Houthi rebels in Yemen, including a ground offensive.

"Short-term fundamentals are considered bullish, even if medium-term fundamentals are more bearish," Varga said.

Although oil futures markets are buoyant, physical markets are much weaker and oversupplied.

Traders see a disconnect in markets, with tens of millions of West African, Azeri and North Sea barrels struggling to find buyers.

The world's biggest oil exporters in OPEC meet in Vienna next month but are not expected to adjust production.

A senior OPEC delegate indicated on Wednesday the group would stick to a strategy of pursuing market share.

The delegate told Reuters the cartel wanted "to bring major non-OPEC producers to the table" to help balance the market:

"But if they don't cut, OPEC is unlikely to cut alone. It has to be a real and clear commitment and with numbers."

(Additional reporting by Jacob Gronholt-Pedersen and henning.gloystein in Singapore; Editing by William Hardy)

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