Oil prices rose on Monday, extending last week’s gains as a drop in the number of U.S. rigs drilling for crude pointed to lower supply later in the year, while China’s latest stimulus measure also underpinned the market.
U.S. oil drilling rigs fell for a record 19th straight week to the lowest since 2010, data from Baker Hughes showed.
While the drop slowed, suggesting the collapse in drilling could be coming to an end, Schlumberger Ltd (SLB.N), the world’s largest oilfield services company, said an eventual recovery in U.S. oil drilling activity may never reach last year’s frenzied pace.
China’s central bank cut the amount of cash that banks must hold as reserves on Sunday, the second industry-wide cut in two months, adding liquidity to bolster the economy.
Brent crude CLOc1 was up 70 cents at $64.15 a barrel by 0532 GMT. It settled lower on Friday but finished the week 9.6 percent higher, its biggest weekly gain in more than five years.
U.S. crude for May delivery CLc1 was also up 70 cents at $56.14 a barrel. The contract, which expires on Tuesday, also fell on Friday but registered a fifth straight weekly gain.
“When we start to see real production cuts in the United States, I suspect more upside to oil prices,” said Ric Spooner, chief market analyst at Sydney’s CMC Markets.
“But the market will find it hard to push U.S. prices much higher than mid-$60s and low-$70s for Brent, because even with U.S. production cuts the global oil market will remain well supplied,” said Spooner.
Other analysts also said the recent price recovery may be short-lived.
“A bottoming-out process for oil prices is likely to be tangible, in our view, only if the trajectory of demand improvement and supply adjustment holds firm momentum,” Barclays said.
“This is not the case, however, as current supply/demand dynamics … are not firmly moving in the direction to tighten market balances in Q2,” it added.
Brent reached its highest this year on Thursday, sparked by an escalating conflict in Yemen that raised concerns about risks to supply from the region’s major exporters, such as Saudi Arabia.
The leader of Yemen’s Iranian-allied Houthi militia accused Saudi Arabia on Sunday of plotting to seize the country, suggesting he was in no mood to compromise despite more than three weeks of Saudi-led bombing.
In Iraq, Kurdish authorities said their forces, backed by U.S.-led coalition air strikes, pushed back Islamic State militants in northern Iraq over the weekend, widening a buffer around the oil-rich city of Kirkuk.