US crude prices rose for a fourth straight session in early Asian trading on Thursday, headed for a 9 per cent weekly gain in the lead-up to Christmas as the US market tightened on the back of falling supplies and looming exports.
Front-month West Texas Intermediate (WTI) crude futures were trading at $37.74 per barrel at 0315 GMT, up 0.6 per cent on the day and set for the biggest weekly gain since early October.
With internationally traded Brent futures trading at $37.60 a barrel, US crude defended a premium it regained this week for the first time in around a year.
The strengthening US market is a result of falling stocks, reduced drilling activity, and looming exports following the lifting of a 40-year old ban of most US crude exports.
On the production front, Baker Hughes reported that US oil drillers cut rigs for a fifth week in the last six, a sign drillers were waiting on higher prices before returning to the well pad. WTI was little changed after the report.
“The current rig count is... pointing to US production declining sequentially between 2Q15 and 4Q15 by 320,000 barrels per day,’’ Goldman Sachs said.
In storage, US crude inventories fell 5.88 million barrels to 484.78 million last week compared with a forecast rise of 1.4 million, the Energy Information Administration (EIA) said.
The tightening physical market came just as US energy group Enterprise and oil trader Vitol raced to exploit the end of the ban on most US crude exports, loading a 600,000-barrel cargo of domestic light crude oil scheduled for the first week of January, although the destination was not immediately clear.
“US production is set to decline in 2016 and is likely to fall even in 2017. Combined with new processing capacity completions, this means that a sustained premium for WTI and LLS to Brent might emerge next year,’’ Barclays said following the reversal of the ban.
Despite this week’s bull-run of US crude, overall market conditions remain weak due to a global overhang in production that sees between 0.5 and 2 million barrels of crude produced every day in excess of demand, and analysts said it would take time for the glut to be worked down.
“Energy prices are likely to rise slightly as production slips, which will ease the current supply versus demand gap. Demand growth should remain solid, but inventories will remain an overhang to markets for much of the year,’’ said Rob Haworth, senior investment strategist at US Bank Wealth Management.
US crude prices have fallen over 10 per cent since the beginning of the month and remain almost two-thirds below mid-2014 when prices began to tumble.