Oil rose further on Tuesday on solid US manufacturing data and a weaker dollar, building on gains sparked by expectations that output will suffer following reports of declining rig counts and cuts in capital expenditure.
Oil has risen more than 13 percent since Thursday after data showed the number of US drilling rigs had fallen the most in a week in nearly 30 years. Some investors are betting a floor has formed under the market’s seven-month-long rout, Reuters reported.
Brent crude oil futures were up $1.13 cents at $55.88 a barrel on Tuesday. US WTI futures were at $50.60 a barrel, up $1.03 cents.
“The strong upside rally continues in the oil market... supported by a softer US dollar and recent solid manufacturing PMI data which improved market sentiment,” said Myrto Sokou, senior research analyst at Sucden Financial. The US manufacturing sector expanded in January at the same pace as in December, keeping demand for oil steady.
BP announced it would cut capital expenditure by 13 percent to $20 billion in 2015, adding to cuts in investment in the sector and expectations of lower oil production. Last week, Chevron announced a 13 percent cut in capital expenditure to $35 billion.
BP chief executive Bob Dudley, remained bearish, however, when he said on Tuesday he expected US oil output to rise until the summer of 2015 when it would flatten.
“The market is trying to find its footing. But the fundamentals of production haven’t changed. We’re in for a minimum year and probably several years of lower prices,” said Dudley. Analysts at Morgan Stanley said the relationship between rig count and production can be deceptive.
“Headline rig count declines may look impressive, but as we look at the data, much of the drop in oil rig count has come in low yielding vertical or directional rigs, i.e. the low-hanging fruit,” they said.
Two OPEC delegates, one from a Gulf producer, said they could not rule out oil prices dropping to as low as $30 to $35, due to weak demand combined with global refinery maintenance in the first and second quarters of 2015.
