Oil surged above $60 a barrel in New York for the first time since December on speculation that the biggest U.S. supply glut in 85 years will ease.
U.S. inventory growth has slowed, and supplies at Cushing, Okla., the main U.S. oil storage hub, have declined. EOG Resources, the largest shale-oil producer, said it lost money in the first quarter after taking steps to halt output growth.
West Texas Intermediate for June delivery climbed $1.47, or 2.5 percent, to $60.40 a barrel on the New York Mercantile Exchange, the highest settlement since Dec. 10. Brent for June settlement added $1.07 to $67.52 a barrel on the London-based ICE Futures Europe exchange, the highest close since Dec. 5.
Crude has rebounded from a six-year low in March as U.S. drillers cut the number of operational oil rigs to the fewest since 2010. The rally may yet falter if higher prices encourage producers to resume pumping too quickly.
“We’ve broken a psychologically important level,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Conn. “It’s related to the idea that North American production will decline and the supply glut will ease.”
U.S. crude inventories increased by 1.35 million barrels through Friday, according to a Bloomberg survey before a report from the Energy Information Administration on Wednesday. Supplies reached 490.9 million barrels in the week that ended April 24. That’s the most since 1930, based on monthly records dating to 1920.
“The market’s probably getting a bit ahead of itself,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. “Inventories are so high, so it’s going to take a long time to get back to normal.”
Inventories at Cushing, the delivery point for West Texas contracts, slid by 514,000 barrels to 61.7 million in the week that ended April 24, the Energy Information Administration said. Crude inventories at the hub probably fell 200,000 barrels in the week that ended Friday, according to a Bloomberg storage model.
Both EOG Resources and Pioneer Natural Resources indicated Tuesday that they are preparing to resume production growth after big cuts in drilling.
EOG Chairman and CEO William Thomas said the company will increase drilling as soon as oil prices stabilize at $65, expecting the price rally to continue all year. Irving-based Pioneer said it plans to add drilling rigs starting in July, subject to market conditions and the sale of other assets.
The number of oil drilling rigs fell to 679 last week, the fewest since 2010, according to Baker Hughes. U.S. monthly oil production will decline from June through September before rebounding in the fourth quarter, according to forecasts from the energy administration.