Oil Rises on Talk of Producer Action, but Excess Looms

Published: 15 August, 2016 12:44

Oil prices rose on Monday (August 15) to their highest in nearly a month, with benchmark Brent crude trading more than 10 per cent above the start of August, as speculation intensified about potential producer action to support prices in an oversupplied market.

Brent crude oil futures rose to a high for the month of $47.67 a barrel on Monday (August 15) before dipping back to $47.10 per barrel at 0943 GMT, up 13 cents from their last settlement, and 11.3 per cent above the last close in July.

US West Texas Intermediate (WTI) crude futures rose to a high of $45.15 a barrel before dipping to $44.63 a barrel, still up 14 cents from their last close. WTI has gained more than 7 per cent in August.

Russia in talks with Saudi Arabia

On Monday (August 15), Russian Energy Minister Alexander Novak bolstered hopes that oil producing nations could take action to stabilize prices, telling a Saudi newspaper that his country was consulting with Saudi Arabia and other producers to achieve market stability.

Still, analysts were skeptical that the market could maintain its strength, particularly as the excess of supply that has dogged producers for the past two years showed little sign of quickly abating.

“In our view a renewed price correction cannot be ruled out if market participants start focusing on the supply side again, for the latest drilling activity figures in the US cast doubts that the oversupply is really being eroded,” Commerzbank analyst Carsten Fritsch said in a note.

Baker Hughes data released on Friday (August 12) showed the number of rigs operating in the US rose by 15 last week to 396.

While far from the over 1,600 in operation in 2014 before the price rout, it has steadily risen from a low of just 316 in late May as US producers adjusted to lower prices.

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