Global oil prices rebounded Wednesday after Goldman Sachs dismissed fears surrounding a sharp increase in Saudi Arabian output in February and noted that OPEC's adherence to its self-imposed production cuts was on track.
Prices were given a further boost when official figures from the Energy Information Agency showed U.S. crude stockpiles fell by 237,000 barrels last week, the second consecutive surprise fall. The draw was narrower than the 531,000-barrel draw the American Petroleum Institute reported late Tuesday.
Energy stocks followed suit as the Energy Select Sector SPDR ETF (XLE) that follows the sector rose 1.3% by midday.
Trade publication Upstream Online reported last week that Borr Drilling, 'is understood to be close to finalising a deal to acquire the jack-up fleet of Transocean as the cash-rich rig start-up capitalises on low asset prices amid a drilling market slump.'
According to the report, the deal would include all Transocean's10 operating jackup rigs, plus five rigs under construction.
The report said the deal is expected to be worth about $1.20 billion, or, 'an average price of only $80 million per rig.'
Weatherford shares rose 3.4% on Wednesday as the follow-on positive sentiment about the firm's new CEO, former Halliburton CFO Mark McOllum.
Bruce Kamich, a technical analyst for Real Money, The Street's premium site for active traders, said on Wednesday, "Weatherford dipped 5.38% yesterday, and maybe some fundamental analysts are looking for some "news" to explain the decline. As a technical analyst, I don't need to do that. To me, WFT just pulled back to filled an upside gap earlier in the month. Some gaps get filled, and some do not. The fundamental analysts will ignore the fact that when WFT soared to over $7 it was on heavy volume of over 100 million shares. Yesterday, when WFT pulled back, is was on only 40 million shares. Technicians like when a stock rallies on strong volume and pulls back on lighter volume as it tells us that the bulk of the people who bought WFT in the rally did not bail out on this decline."
Brent Crude futures for delivery in May climbed 1.3% to $51.58 a barrel in early trading, erasing falls on Tuesday after Saudi Arabia said it had pumped 10.11 million barrels per day (mb/d) in February, up about a third on its January figure. The U.S. benchmark West Texas Intermediate futures for delivery in April climbed 1.7% to $48.48 a barrel in afternoon t
Goldman dismissed the increase out of Saudi Arabia, noting that secondary sources, which are typically used to track output, showed Saudi production had fallen in February compared to January. Saudi Arabia also noted late Tuesday that any extra production was destined for its domestic reserves, which have declined by 57 million barrels since the end of 2015.
"We believe that data available across sources for February continues to show rising compliance to the cuts," Goldman analysts wrote. "We, therefore, reiterate our view that the oil market rebalancing is still progressing with continued evidence of strong demand over the past weeks comforting us in our forecasts that oil demand is finally set to overtake supply in 2Q17."
OPEC producers and Russia last year agreed to cut production by 1.8 million barrels over the first six months of 2017 in a bid to drain inventories and support prices that had fallen over 50% since the start of 2014. The plan succeeded in pushing oil above $56 per barrel earlier this year but has faltered in recent weeks due to stubbornly high stockpiles in the U.S. where a rebound in output from shale gas fields is evidenced by a rig count that it at its highest level since Sept. 2015.
OPEC has said that it could extend the production cuts for another six months if that were necessary to rebalance the market.
"We believe it is not in OPEC's interest to extend its cuts beyond six months as its goal is to normalize inventories, not support prices," noted Goldman. "Our base case remains that the production cuts will be followed by new production highs."
The combination of record OPEC output, with the increase in U.S. shale production and new projects among global oil companies, is likely to push oil back below $50 a barrel in the long term, according to the broker.
*Tony Owusu contributed to this story.