$70b of Oil Gains in Best Week Since 2008

$70b of Oil Gains in Best Week Since 2008$70b of Oil Gains in Best Week Since 2008

European oil companies are heading for the best weekly performance in seven years as they added about $74 billion in value following the crude’s surge past $50 a barrel.

The 23-member Stoxx Europe 600 Oil & Gas index has climbed 13% this week, the most since November 2008. Tullow Oil Plc, which operates oilfields in Africa, is the best performer with a 38% increase while Royal Dutch Shell’s A shares in London have advanced 13%, also heading for their biggest weekly gain in seven years, Bloomberg reported.

Oil has rebounded this week with the US benchmark going past $50 for the first time since July, as output from the world’s biggest consumer drops and Shell and Pacific Investment Management Co. said the worst may be over.

Even before crude slumped to a six-year low in August, oil companies were in the middle of programs to slash spending, halt projects and reduce their workforces to preserve cash and protect their balance sheets.

Producers have deferred more than $200 billion of projects over the past 15 months, according to consultant Wood Mackenzie Ltd.

BP reduced its spending forecast for this year to less than $20 billion after investing about $23 billion in 2014. Shell is cutting 6,500 jobs and plans to lower spending by $7 billion. US explorers have idled more than half the country’s oil rigs since last October.

  Eliminating Oversupply

Shell’s Chief Executive Officer Ben Van Beurden was the first among oil majors’ bosses to say this week he saw signs of a recovery.

"Cutting investment in oil exploration and production by a record 20% this year will eventually reduce or eliminate oversupply," IEA Executive Director Fatih Birol said in London.

Chevron, the second-biggest US oil company, has gained 10% this week, heading for the best performance since December 2014. Exxon Mobil Corp., the world’s biggest oil company by market value, has climbed 5.5%.

Services companies, among the worst affected as oil slumped, have returned more than 18% in Europe over the week, with shares of Petrofac Ltd. heading for a record weekly gain of almost 28%.

Norway’s Aker Solutions ASA also had its best weekly performance since it went public a year ago, soaring 25%.

  Still Cautious

Oil may rise to a “baseline” of about $60 a barrel in one year’s time as the impact of supply cuts becomes more evident from early 2016, according to Greg Sharenow, an executive vice president at Pimco.

US crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June.

Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain “lower for longer” because of excess inventories, according to Pimco, which manages $15 billion of commodity assets.

Shell plans for a long stretch of low prices, Van Beurden said this week in London.