Oil extends rebound as selloff seen ignoring tightening supply

Hong Kong - Oil extended gains as Goldman Sachs and Citigroup warned the crude market is tightening and that the selloff last week to the lowest in five months wasn’t based on fundamentals.

Futures rose as much as 1.6% in New York, adding to Friday’s 1.5% increase after prices dropped to the weakest since November. The market’s rebalancing progressed in April and may be helped further by an extension of OPEC-led supply cuts, Goldman Sachs said.

Last week’s plunge was “all technicals,” Citigroup’s Head of Commodities Research Ed Morse said.

Oil, which capped a third weekly drop last week, has surrendered all its gains since the Organisation of Petroleum Exporting Countries agreed in November to cut output as concerns mount its efforts are being overwhelmed by rising US supply.

OPEC will meet May 25 to decide whether to extend supply cuts through the second half of the year. US drillers boosted the number of rigs targeting crude to the most since April 2015, Baker Hughes data showed on Friday.

“The demand picture remains modestly constructive,” said Michael McCarthy, a chief market strategist at CMC Markets in Sydney. “The negativity last week, in particular concern about demand, may have been overdone. We expect the inventory situation to right itself, but that’s been a very slow process so far.”

West Texas Intermediate for June delivery rose as much as 76 cents to $46.98 a barrel on the New York Mercantile Exchange and traded at $46.89 at 08:12. Total volume traded was about 42% above the 100-day average. The contract gained 70c to $46.22 on Friday.

Brent for July settlement climbed as much as 82c to $49.92 a barrel on the London-based ICE Futures Europe exchange. Prices slid 5.1% last week. The global benchmark crude traded at a premium of $2.56 to July WTI.

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