Oil extended its gain from a six-year low in New York amid signs the U.S. may allow unfettered crude exports for the first time in 40 years.
West Texas Intermediate advanced as much as 2.2 percent, adding to Monday’s 1.9 percent gain amid a broader rally of European stocks and emerging market currencies. House Democrats are open to lifting the ban on U.S. crude exports, depending on what concessions they would get in exchange, a Democratic leadership aide said Monday. The nation’s inventories probably declined last week, according to a Bloomberg survey before data on Wednesday.
Oil is trading close to levels last seen during the global financial crisis after the Organization of Petroleum Exporting Countries effectively abandoned output limits as it sought to defend market share. Repealing the restrictions on shipping U.S. crude overseas could open new markets for the world’s largest oil and gas producer, buoying the price of domestic crude grades.
“There’s likely to be some positioning in front of the possible lifting of the ban,” said Olivier Jakob, managing director of consultants Petromatrix GmbH in Zug, Switzerland. “But we also need to consider that we are at multi-year lows” that may spark a recovery, he said.
U.S. Exports
WTI for January delivery rose as much as 80 cents to $37.11 a barrel on the New York Mercantile Exchange and was at $36.50 as of 12:37 p.m. London time. The gap between WTI and Brent — the North Sea grade used globally — shrank to as little as $1.48 a barrel, the least since Jan. 22. The U.S. benchmark slid below $35 a barrel Monday for the first time since February 2009. The volume of all futures traded Tuesday was about 44 percent above the 100-day average.
Brent for January settlement, which expires Wednesday, rose 49 cents to $38.41 a barrel on the London-based ICE Futures Europe exchange. The more active February contract climbed 55 cents to $38.71.
WTI has traded at a discount to Brent for most of the past five years as U.S. output surged as a result of the shale revolution and national oil inventories ballooned. The restriction on crude exports was established during the energy supply shortages of the 1970s. Repealing the ban would put U.S. crude on the same footing as refined products such as gasoline and diesel, which can be freely sold overseas.
OPEC Supply
Any removal of the U.S. export curbs won’t affect oil prices, OPEC Secretary-General Abdalla El-Badri said in New Delhi on Tuesday. Prices won’t continue at current depressed levels as global markets will ultimately rebalance, he said. Still, Nigeria’s Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu said in Abuja on Monday that OPEC may need “a very urgent meeting” if oil prices aren’t recovering by February.
The group failed to agree to production limits at a Dec. 4 meeting, instead setting aside its quota of 30 million barrels a day until the next gathering in June. Members are showing “renewed determination” to maximize output, the International Energy Agency said in a report last week.
U.S. crude inventories probably decreased by 500,000 barrels in the week ended Dec. 11, according to the median estimate in a Bloomberg survey of nine analysts before Energy Information Administration data Wednesday. Stockpiles were at 485.9 million barrels through Dec. 4, more than 120 million above the five-year seasonal average.
WTI may fall into the high $20s if tanks used to store crude start to fill up before producers sufficiently curb output, Citigroup Inc. Managing Director Ed Morse said. Brent, the global marker, would need to decline to about $30.
“The quarter ahead looks a good deal more bearish than the quarter just ending,” Morse said in a report. “The already oversupplied market now faces the imminent return of Iranian barrels and onshore storage capacity constraints look set to be tested in the first half.”