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Oil opens above $50 per barrel for the first time this year

Rally comes amid underlying concerns about exuberance global economic weakness.

By Daniel J. Graeber
Oil opens above $50 per barrel for the first time this year
Crude oil prices opened Wednesday above $50 per barrel for the first time in nearly a year, though underlying pressures from sluggish growth could slow the rally. File photo by Monika Graff/UPI | License Photo

NEW YORK, June 8 (UPI) -- An expected dip in U.S. oil production and seasonal inventory declines stimulated a rally in oil prices Wednesday, though long-term trajectory is uncertain.

A short-term market report from the U.S. Energy Information Administration said total U.S. oil production for May was 8.7 million barrels per day, a 2.2 percent decline from the previous month. By next year, total U.S. crude oil production should average 8.2 million bpd, which would be more than 10 percent lower than last year if the forecast proves accurate.

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A surplus in global crude oil production, which came in large part from the United States, pushed markets heavily toward the supply side, sending crude oil prices well below the $100 per barrel mark common in 2014. Lower oil prices means less capital for exploration and production, which in turn has moved the market back toward a relatively stable balance between supply and demand.

After several months of a build in inventories, crude oil storage levels in the United States are shrinking. Data released late Tuesday from the American Petroleum Institute show supplies declined by about 3.6 million barrels last week.

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The price for Brent crude oil moved up 1.5 percent to $52.24 per barrel in early trading Wednesday in New York. West Texas Intermediate, the U.S. benchmark price for oil, gained 1.3 percent to $51.02 per barrel, opening above the $50 mark for the first time since July.

The rally may be a reflection of seasonal demand pressures, however. David Fyfe, a analyst at global commodity trader Gunvor, told The Fuse, an energy news website by Securing America's Future Energy, it may be too early to declare an end to the glut that dragged down oil prices last year as global oil inventory levels are still above the five-year average.

"I'd certainly buy into a fairly bullish outlook medium term, but there may be bridges to cross before we move above $50 on a sustained basis," he was quoted as saying.

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From the EIA's perspective, while forecasts are higher than previous estimates, the average price for crude oil this year is expected at $46 per barrel and only holds above $50 per barrel next year. While U.S. oil production declines, output from the members of the Organization of Petroleum Exporting Countries increases by 800,000 bpd this year and another 700,000 bpd in 2017.

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On the economic front, the World Bank revised its global growth forecast for the year from 2.9 percent to 2.4 percent, citing "sluggish" momentum in the world's leading economies.

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