Brent for July delivery climbed five cents, or 0.10 per cent to $49.33, around its highest levels since October.
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Goldman said that the market “likely shifted into deficit in May. driven by both sustained strong demand as well as sharply declining production”.
That’s a massive production cut when you consider that Canada produces, on average, about 4.4 million barrels of oil per day, making it the fifth-largest oil producer in the world. The US crude’s West Texas Intermediate (WTI) futures rose by $1.51, or 3.3 percent, to $47.72 and hit a six-month high at $47.85.
Goldman Sachs, which has been bearish on oil for a while, has now upgraded its forecast for the commodity.
The recovery in the price of oil towards $50 a barrel is being viewed by stock investors as a sign of an improving global economy.
The Alberta fires have reduced output by about 1.2 million barrels a day, according to new estimates from the Conference Board of Canada.
There are also declining US production and virtually frozen inflows of Canadian crude after wildfires in Alberta’s oil sands region slowed glut and helped to lift oil prices.
US crude inventories shrank by 3.4 million barrels to 540 million barrels through May 6, according to Energy Information Administration data.
U.S. oilfield services firm Baker Hughes said the number of USA drilling rigs fell to its lowest level since October 2009, which is good news for prices as United States production is a key contributor to the oversupply.
Nigerian oil output has been cut by nearly 40 per cent, the government said. This means that the oversupply of 1.4 million barrels a day that persisted in the first quarter of 2016 has been easily knocked away by the combined supply disruptions of Canada and Nigeria that are somewhere around 1.8 million barrels a day. On the present trajectory, the oil market is headed for a big supply deficit by 2018/19. A deal on resuming oil exports from Libyan ports, a ramp up in Nigerian crude production by Exxon Mobil Corp and an improved oil-for-loans deal between Venezuela and China lifted the sentiments, reports Reuters.
Prices rose after a Reuters poll of oil analysts forecast USA crude inventories likely fell 2.8 million barrels last week, declining for a second straight week. The report showed that OPEC’s crude oil production increased by 188,000 bpd to 32.4 MMbpd in April 2016-compared to March 2016.
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The slowing crude oil production will support crude oil prices.
