Crude Rebounds From multimonth lows on Economic Data and Russia, Ukraine Talks

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Crude oil prices climbed by more than $1 a barrel on both sides of the Atlantic on Wednesday as oil markets bounced off multimonth lows hit in the previous session, as the prospect of peace talks between Ukraine and Russia as well as strong U.S. economic data raised demand expectations.

Brent for October settlement gained $1.67, or 1.7 percent, to $102.01 a barrel at 11:52 a.m. New York time on the London-based ICE Futures Europe exchange. The volume of all futures was 13 percent above the 100-day average. The contract closed yesterday at its lowest since May 1, 2013. The European benchmark traded at a premium of $7.58 to WTI on the ICE, compared with $7.46 yesterday.

WTI for October delivery advanced $1.55, or 1.7 percent, to $94.43 a barrel on the New York Mercantile Exchange. The contract fell yesterday to its lowest close since Jan. 14. Volume was about 4.7 percent below the 100-day average.

Russian President Vladimir Putin outlined a peace plan for Ukraine after agreeing with his Ukrainian counterpart Petro Poroshenko on steps toward a cease-fire in the conflict that has raged for more than five months.

“The markets are very much being swayed by the events in Europe and Ukraine,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. The cease-fire talks “will hopefully stop the downward spiral we are seeing in the euro-zone economy and the worry about more sanctions being applied.”

"If the ceasefire holds, sanctions will be lifted and that will mean more economic activity. We've gone from a situation where we'd lowered demand expectations to rising demand," said Phil Flynn, an analyst at the Price Futures Group in Chicago.

New orders for U.S. factory goods jumped in July and automobile sales in August were unexpectedly robust, offering further signs of strength in the manufacturing sector.

A weaker dollar and expectations of a decline in U.S. crude inventories further supported oil prices, which on Tuesday had plummeted in reaction to a sharp gain in the dollar and concerns over slowing oil demand growth in China and Europe.

"You would expect the market to bounce after such a major downward move yesterday," said Tony Machacek, a broker at Jefferies in London. "Fundamentally, the oil market is well supplied and the indications are prices are still in a downtrend."

Investors have mostly discounted threats to supplies from conflict in the Middle East and North Africa, focusing instead on the lack of further disruption to oil flows in Iraq and rising output in Libya.

The latest U.S. inventory reports are expected to show crude and refined fuel stocks dropped last week, according to a Reuters survey, potentially supporting prices.

Nigeria, Saudi Arabia and Angola led production gains among OPEC members last month as new deposits came online, security improved and field maintenance programs ended, according to the Bloomberg survey of oil companies, producers and analysts. Iran and Venezuela were the only members to record reduced output.

Iraq, the second-largest producer among OPEC’s 12 members, expanded output by 90,000 barrels a day to 3.09 million in August, the survey shows. The advance of Islamic State, a militant group, has spared the country’s south, home to about three-quarters of its production.

“Representatives of OPEC countries have been surprisingly quiet following the $10-per-barrel drop in oil prices over the last two months,” JBC Energy GmbH, Vienna-based analysts, said in a report on Monday. The organization will contemplate output cuts in the coming months as Saudi Arabia’s demand for direct-burning of crude slides and Asian refineries seek less feedstock from the Middle East, JBC said.

U.S. shale to cap oil prices in 2015 despite conflicts

Increased supply of shale oil from the United States and sluggish global demand will cap oil prices next year despite conflicts in Iraq, Libya and other producers, according to the consensus forecast in a Reuters poll of oil analysts.

The 28 analysts polled by Reuters forecast Brent crude oil would average $105.30 a barrel in 2015, little changed from the $105.20 forecast in the July poll. The North Sea benchmark has averaged $108.13 so far this year and $108.70 in 2013.

The poll forecast U.S. light, sweet crude, also known as West Texas Intermediate or WTI, would average $98.50 a barrel in 2015, up from $97.30 in the July poll. WTI has averaged $100.50 so far this year.

U.S. production will increase while the marginal cost of producing oil from shale deposits is expected to be lower than the price of WTI over the next three years, according to Rahul Prithiani, director at CRISIL Research.

The U.S. Energy Information Administration recently projected that U.S. production would average 9.3 million barrels per day in 2015, its highest annual level since 1972.

In addition to the shale bonanza in the United States, analyst Torbjørn Kjus of DNB Markets expected meaningful supply growth from Canada, Brazil, China and Russia.

Analysts forecast non-OPEC supply growth would outpace oil demand growth next year, reducing the need for OPEC oil.

Barclays analysts said political risks are likely to check production in Iran, Libya and Iraq and support oil price levels for 2014 and in 2015.

Brent's premium to its U.S. counterpart should narrow to $7.50 per barrel in 2014 and $6.80 a barrel in 2015 from $10.58 last year, the poll showed.

Raiffeisen Bank International had the highest 2015 Brent forecast at $119.50 a barrel, while OCBC Bank had the lowest at $90.

Source: Bloomberg; Reuters