Oil prices leap 8% on lower US output, OPEC signal

US crude oil closed nearly nine per cent higher on Aug 31, 2015, as the government lowered its domestic production estimate and OPEC highlighted concern about multi-year low prices. (AFP Photo)

NEW YORK: Oil prices surged higher on Monday (Aug 31) as the US government lowered its domestic production estimate and OPEC said it was "ready to talk" to producers about multi-year low prices.

US benchmark West Texas Intermediate for October delivery jumped US$3.98 (8.8 per cent) to US$49.20 a barrel on the New York Mercantile Exchange, its third straight winning session. In London, Brent crude for October delivery closed at US$54.15 a barrel, up US$4.10 (8.2 per cent) from Friday's settlement.

Over the past three winning sessions WTI has gained 27.5 per cent and Brent is up 25.52 per cent.

Oil prices opened lower on Monday but pulled out of negative territory after the Department of Energy said that US domestic production in June was 9.3 million barrels a day, about 100,000 barrels lower than its previous estimate. Monthly estimates for the January to May period were revised lower by as much as 130,000 barrels a day.

US production had been running at record levels since the beginning of the year, exacerbating the global oversupply situation.

Also boosting prices was a statement by the OPEC oil cartel to the effect that the continuing downward pressure on prices "remains a cause for concern" for the group.

The Organistion of the Petroleum Exporting Countries, responsible for about 40 per cent of global crude production, tied the price pressure to higher production and market speculation.

"Needless to say, OPEC, as always, will continue to do all in its power to create the right enabling environment for the oil market to achieve equilibrium with fair and reasonable prices," OPEC said in a monthly report.

"As the organisation has stressed on numerous occasions, it stands ready to talk to all other producers. But this has to be on a level playing field. OPEC will protect its own interests."

Analysts cast doubt on whether OPEC was willing to curtail production. "Oil traders appear to be reading this as a pledge to rein in production, or at least, to avoid letting production get any higher. That will prop up prices - if it works," said Paul Ausick at 24/7 Wall St, who added: "Colour us skeptical."

OPEC crude output climbed by 108,000 barrels to 32.32 million barrels a day in August, Bloomberg News reported on Monday, noting that was well above the cartel's official limit of 30 million barrels per day.

Ausick said that it appears the OPEC leadership "agreed to take to the bully pulpit on behalf of those members hit the hardest, knowing that any indication that the cartel was ready to resuscitate pricing by (obliquely implying) lowering production would give crude a shot in the arm."