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 Strong gasoline consumption in the United States, increasing signs
of declining production around the world and oilfield outages have
underpinned a return to investment in the sector, traders said.
"The current rally is driven by a market sentiment that is becoming
more and more convinced that the worst is over and the global oil
market rebalancing process is already in play," said Dominick
Chirichella, senior partner at the Energy Management Institute in
New York.
Brent futures ended the session up 1.3 percent at $45.11 per barrel,
while U.S. West Texas Intermediate crude settled up 1.3 percent at
$43.73 a barrel. Both contracts jumped as much as 3 percent during
the session.
The rally was limited by profit taking ahead of the weekend, brokers
said.
Brent has surged 4.5 percent this week and U.S. crude 8.4 percent as
both benchmarks notched a third week of gains. Crude is up more than
two-thirds since its 2016 lows between January and February.
Traders also pointed to strong crude imports to China in March as
supporting prices.
Still, some analysts warned that the oil market was still far from
balancing supply and demand.
"While this recent rally has the potential to run further to the
upside ... we believe that it is not yet driven by a sustainable
shift in fundamentals," Goldman Sachs said in a note to clients.
The Wall Street bank maintained its view that a sustainable
balancing of the market, driven by declines in U.S. shale oil
production, would take place in the third quarter.
Many analysts have said they expect producers in the United States
to take every opportunity to aggressively hedge by selling as soon
as oil prices recover for short periods of time. This would have a
tendency to pressure prices in later months, which could in turn
limit front-month gains.
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Sure enough, EOG Resources placed hedges for nearly 10 million
barrels of crude oil in the first quarter through June 30, according
to a regulatory filing this week.
Falling output, especially in the United States, where many
producers have reeled from an up to 70 percent oil price rout since
mid-2014, has helped to lift the market.
U.S. energy firms cut oil rigs for a fifth week in a row to the
lowest level since November 2009, oil services company Baker Hughes
said on Friday.
French investment bank Natixis said it expected U.S. oil production
to drop by at least 500,000 to 600,000 barrels per day (bpd) this
year, compared with 2015, and by another 500,000 bpd in 2017.
Despite the recent rally, oil markets remain oversupplied as between
1 million and 2 million barrels of crude are being pumped out of the
ground every day in excess of demand, leaving storage tanks around
the world filled to the brim with unsold fuel.
(Additional reporting by Ron Bousso in London and Henning Gloystein
in Singapore; Editing by David Gregorio and Richard Chang)
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