Oil rise as BP cuts capital expenditure

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Getty Images

Oil futures rose on Tuesday, adding to gains of more than 11 percent in the prior two sessions as BP announced a cut in capital expenditure for 2015.

BP announced it would cut capital expenditure by 13 percent to $20 billion in 2015. Last week, Chevron announced a 13 percent cut in capital expenditure to $35 billion.

Related: Crude oil prices have hope as supply & demand try to find market equilibrium

The announcement of capital expenditure cuts by major oil companies are helping support prices, said Michael Hewson, chief market analyst at CMC Markets.

“We’ve seen a lot of oil companies announce significant cuts in capacity expenditure and reductions in rig counts. What you’re getting at the moment is a paring back of expectations as a result of the measures being taken,” Hewson said.

Brent crude oil futures were up $1.90 cents at $56.65 a barrel as of 0934 GMT. U.S. WTI futures were at $51.08 a barrel, up $1.51 cents.

Related: Despite declining oil prices, Texas is on the rise

Prices jumped in the past two days after data showed the number of U.S. oil drilling rigs had fallen the most in a week in nearly 30 years. Month-end covering by traders taking profits on short positions added to the rally.

Some investors are betting a floor has formed under the market’s seven-month-long rout, with signs that a fall in drilling activity at U.S. shale deposits has raised concerns about future production.

“The seeds of an oil price recovery are being sown,” Bernstein analysts said in a note, warning of downside risk to oil supply in places such as the Gulf of Mexico, the North Sea and Brazil, as companies cut costs in response to a fall of up to 60 percent in oil prices since mid-June.

Related: Experts weigh in on the future of oil prices

“Supply is unlikely to match expectations and demand will recover from last year’s lows,” the analysts said.

Others warned against getting too excited about falling rig counts in the United States. Analysts at Morgan Stanley said the relationship between rig count and production can be deceptive.

“Headline rig count declines may look impressive, but as we look at the data, much of the drop in oil rig count has come in low yielding vertical or directional rigs, i.e. the low-hanging-fruit,” they said.

Two OPEC delegates, one from a Gulf producer, said they could not rule out oil prices dropping to as low as $30 to $35, due to weak demand combined with global refinery maintenance in the first and second quarters of 2015.

Source: www.reuters.com


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