Oil prices rally as IEA sees possible price 'bottom'

An oil rig. (AFP Photo)

NEW YORK: Oil prices rebounded Friday (Mar 11) after the International Energy Agency said that after the market's long rout, there were signs prices may have "bottomed out".

US benchmark West Texas Intermediate (WTI) for delivery in April rose 66 cents to US$38.50 a barrel on the New York Mercantile Exchange.

In London, Brent North Sea crude for May delivery, the European benchmark, rose to US$40.39 a barrel, up 34 cents from Thursday's settlement.

"The market is gravitating to the idea we're going to see some tightening of the supply and demand fundamentals," said Gene McGillian of Tradition Energy.

The notion, which emerged last month amid discussions about freezing output led by Saudi Arabia and Russia, picked up steam from the IEA's new market report Friday.

After a 20-month rout that has shaved prices more than 60 percent since mid-2014, a tentative recovery is underway, it suggested.

"International crude oil prices have recovered remarkably in recent weeks," the IEA noted in report.

"This should not, however, be taken as a definitive sign that the worst is necessarily over. Even so, there are signs that prices might have bottomed out."

The IEA said the Saudi-Russian effort to gather producers behind an output freeze a "first stab at co-ordinated action that is intended to stabilize prices" with the presumed aim of pushing oil up to US$50 a barrel.

But the IEA predicted there was a long way to go before oil supply and demand find a real balance, probably in 2017.

In the United States, the Baker Hughes report on active drilling rigs in the country showed another decline, by six rigs, this week, pointing to a continuing fall in production.

Bob Yawger, of Mizuho Securities USA, highlighted the lift from the European Central Bank's decision Thursday to unleash further stimulus for the ailing eurozone economy. "Free money is always positive for commodities," he said.

Still, analysts sounded notes of caution because of the persistence of the global glut.

"Last year in the spring we jumped up US$20 on this kind of thinking, then when we didn't see signs that the production dropped off, the market gave it all back," said McGillian.