Oil Rises After IEA Sees Market Rebalancing on Refinery Demand

(Bloomberg) -- Oil climbed as the International Energy Agency sees global oil markets continuing to re-balance this year as demand from refiners grows.

Futures surged as much as 3.2 percent in New York. Refiners around the world will process record volumes of crude this quarter to absorb all-time high production from several Persian Gulf producers, according to a monthly report from the IEA. Talks with oil producers could include possible action to stabilize the market, Saudi Arabia’s energy minister said, according to Dow Jones.

“The word of the day is ‘re-balance.’ We’re going to see heavy refinery runs, and that’s going to draw down some of that crude overhang,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Higher demand will also bring down the product inventories.”

Oil has fluctuated after tumbling more than 20 percent into a bear market last week. Growth in demand will shrink brimming crude stockpiles even as Saudi Arabia, Kuwait and the United Arab Emirates pump at all-time highs amid competition between members of the Organization of Petroleum Exporting Countries to secure market share, the IEA said.

West Texas Intermediate for September delivery rose $1.28, or 3.1 percent, to $42.99 a barrel at 10:52 a.m. on the New York Mercantile Exchange. Brent for October settlement rose $1.33, or 3 percent, to $45.38 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $1.65 premium to WTI for October delivery.

More Refining

Refiners’ crude processing this quarter will increase by 600,000 barrels a day from a year earlier to a record 80.6 million a day, according to the IEA. Crude processing, or throughput, sank by 480,000 a day between April and June amid a glut of fuels like gasoline churned out earlier in the year while refiners took advantage of cheap oil prices.

“Even though OPEC production is going to go up, we’re still going to be growing demand,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. The IEA report “seems to suggest we can get the market in balance late this year or early next year.”

OPEC plans to hold informal talks to discuss the market at the International Energy Forum next month in Algiers. Saudi Arabia’s oil minister said the country would act to help re-balance the market if needed, Dow Jones reports.

“Frankly I’m not sure that OPEC really needs to freeze here given the supply and demand situation seeming to come into balance,” said Paul Crovo, a Philadelphia-based oil and equity analyst at PNC Capital Advisors. “We think the fundamentals will take care of themselves as we come into the third quarter and later into the fourth quarter and early 2017.”

Oil-market news:

Rosneft PJSC’s oil output grew in the second quarter amid a massive drilling surge, potentially marking a pivotal return to growth as Russia’s largest producer weathers the slump in crude prices. While shale drilling in the U.S. is on the rise again, prices need to climb nearer to $60 a barrel for U.S. producers to have a “substantial” boost in activity, the IEA said. OPEC’s 14 members pumped 33.4 million barrels a day in July, up 150,000 barrels a day from June, the IEA said in its monthly report.