Oil prices rise on slower U.S. output growth, strong Chinese demand

Oil Well Reuters

Oil Well Reuters

Brent crude futures were at $49.02 per barrel at 0656 GMT, up 11 cents, or 0.2 percent, from their last close.

Brent crude futures LCOc1 rose 22 cents, or 0.5 percent, to settle at $47.74 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 gained 45 cents, or 1 percent, to settle at $45.49. the bigger gain in U.S. crude, pressured the premium of front-month Brent futures over WTI to $2.08 per barrel, the lowest so far this month.

The slight rises extended strong gains from last week. The increased production in the USA and an increase in the numbers of operating rigs remain as one of the biggest of concerns for the oil bulls. However, the slower pace of additions, as well as a much larger-than-expected decline in USA crude stocks reported by the Energy Information Administration last week of 7.6 million barrels, suggests the torrid pace of American production could be easing.

The data followed figures from Houston-based oil services group Baker Hughes Friday which showed US drillers added two new rigs to their production lines last week, bringing the total to 765, the highest since August 2015. Although the number of rigs is at its highest level since April 2015, there is a sign of a slowdown.

The slowdown in the rate of new oil rigs offered support to oil prices, as the addition of new rigs over the previous four weeks averaged five.

"Given the usual time lag between price signal and drilling decision, the coming month, which also features the E&P (exploration and production) earning season, will be key", said Goldman Sachs.

The U.S. Energy Information Administration (EIA) said U.S. crude inventories fell 7.6 million barrels last week, and it is the huge weekly drop in 10 months.

China's National Bureau of Statistics (NBS) reported that throughput in June stood at 11.21 million barrels per day (bpd), up from May's 10.98 million bpd.

Some, however, cautioned against too much optimism. In the first half of this year, crude oil price declined by around 15 percent, which is its worst H1 showing in 19 years.

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