Crude Oil Closes at Ten-Month High as Market Seen Rebalancing

• Bloomberg commodity index at highest level since October
• OPEC members ‘basically happy’ with price recovery: analyst

Crude closed at the highest level in more than 10 months in New York on signs the global glut is contracting more quickly than projected.
West Texas Intermediate oil rose 2.2 percent to $49.69 a barrel. Investors are buying commodities on speculation the Federal Reserve will hold off from raising interest rates this month, which will weaken the dollar and bolster interest in raw materials priced in the currency. Eni SpA said 65,000 barrels a day of crude output was halted Friday after a militant attack in Nigeria.

"We’re still dealing with follow through from the jobs report Friday," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "The dollar isn’t doing much today but we still don’t think it’s reached its bottom. Eni’s problems in Nigeria are adding to the upward pressure."
Oil has surged more than 80 percent from a 12-year low early this year on a combination of unexpected supply disruptions and a persistent decline in U.S. output, which is under pressure from the Organization of Petroleum Exporting Countries’ policy of producing without limits. OPEC balked at adopting a new output ceiling last week. Outgoing Secretary-General Abdalla El-Badri said that it’s difficult to find a target as Iranian supply rises and significant Libyan volumes are halted.

Market Recovery

WTI for July delivery climbed $1.07 to settle at the highest level since July 21 on the New York Mercantile Exchange.  Total volume traded was 32 percent below the 100-day average at 2:41 p.m.
Brent for August settlement increased 91 cents, or 1.8 percent, to $50.55 a barrel on the London-based ICE Futures Europe exchange. Its the highest close since Oct. 9. The global benchmark crude ended the session at a 38-cent premium to WTI for August delivery.
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Commodities rose and the dollar sank Friday after data showed that the U.S. economy created the fewest jobs last month in almost six years. The Bloomberg Dollar Index, which tracks the currency against major peers, was little changed after tumbling 1.5 percent on June 3, the most in four months. The Bloomberg Commodity Index, a gauge of 22 raw materials, increased as much as 1.5 percent to the highest level since Oct. 23.

Yellen Comments

Fed Chair Janet Yellen said in Philadelphia that positive forces supporting U.S. job growth and higher inflation will still probably outweigh negative developments, calling additional rate increases appropriate without specifying their precise timing. Her speech may be the final public word before Fed officials enter their traditional self-imposed quiet period heading into the June 14-15 meeting of the Federal Open Market Committee.
A militant group known as Niger Delta Avengers has claimed attacks on facilities belonging to companies including Chevron Corp., Royal Dutch Shell Plc and Agip Oil Co., causing Nigeria’s output to drop to an almost 30-year low of about 1.4 million barrels per day.
"OPEC didn’t do anything last week because they are basically happy with how prices have recovered," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "We have additional headlines from Nigeria. A lot of high-quality crude has been lost and there’s no sign it will come back anytime soon."

Shrinking Surplus

The global surplus is down to 1.2 million to 1.5 million barrels a day and has dwindled faster than expected, Ali Majed Al Mansoori, chairman of the Abu Dhabi Department of Economic Development, said in a Bloomberg Television interview. The market recovery is on track and a price range of $55 to $60 is possible this year, Mansoori said. Abu Dhabi controls most of the oil reserves in the United Arab Emirates, OPEC’s fourth-largest producer.Gasoline futures dropped amid speculation that demand for the fuel won’t meet expectations, according to Yawger. The gasoline crack spread, a rough measure of the profit from processing a barrel of oil into gasoline, fell 9.2 percent to the lowest since May 9.
"The gasoline market is the most interesting one today," Yawger said. "Demand hasn’t materialized. The crack spread is shrinking while contango is expanding."
July gasoline futures fell 1.2 percent to $1.5887 a gallon, the lowest close since May 13. The market is in contango, when prices for delivery today are lower than those in future months, which may signal weak near-term demand or rising supply.
Oil-market news:

• Speculators cut their total long and short positions on WTI crude to the lowest since January 2015 before the June 2 OPEC meeting, according to Commodity Futures Trading Commission.
• Saudi Arabia raised pricing on most oil grades for sale to Asia and the U.S. in July after the nation’s energy minister said demand was robust.
• U.S. drilling increased from the lowest level in more than six years, according to data from Baker Hughes Inc. on Friday.
• U.S. crude supplies probably fell 3 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.