Oil prices follow stock markets higher

A motorist filling up his vehicle at a petrol kiosk. (Photo: AFP/Federico Parra)

​NEW YORK: Oil prices rallied on Monday (Oct 5), following equity markets higher and still finding support from a drop in US drilling activity that could ease the global oversupply.

US benchmark West Texas Intermediate for delivery in November rose 72 cents to US$46.26 a barrel on the New York Mercantile Exchange. Brent North Sea crude for November delivery, the global benchmark, closed at US$49.25 a barrel in London, a gain of US$1.12 from Friday's settlement.

Oil prices benefited for a second straight day from the decline in active US oil rigs last week. The Baker Hughes US oil rig count released on Friday showed rigs fell by 26 to a five-year low of 614. The decline spurred expectations that US oil production, thought at historically high levels, will decline.

"It seemed that definitely the market is strong because of the massive drop we saw in the rig counts last weeks, which set a stage for a rally, as well as strength in the stock market," said Phil Flynn of Price Futures Group.

Flynn pointed to increasing talk of capital spending cuts as companies grapple with the fall in oil prices, suggesting further production cutbacks are looming.

Friday's weak US September jobs report appeared to take the Federal Reserve's plan to raise its zero-level interest rate off the table in October, removing a support for the dollar - at least for the time being.

"The Fed not being able to raise its interest rates should bode pretty well for the oil market moving forwards," Flynn said.

A weaker dollar makes crude oil, priced in the US currency, cheaper, tending to boost demand. In addition, analysts said the oil market was underpinned by Russia's signal that it was willing to talk to other oil producers about the global oversupply.

Crude futures were "supported by a softer US dollar and talks that Russia is ready to meet OPEC and non-OPEC crude oil producers in order to discuss the market", said Myrto Sokou, senior analyst at Sucden Financial Research.

"The news provided strong upside momentum in the oil market, as Russia has been thus far unwilling to cut oil production and cooperate with the OPEC members in order to support the current low crude oil prices," she said.

Russia is among the world's top oil producers alongside OPEC kingpin Saudi Arabia and the United States.