Oil Prices Rally to Four Month High On Middle East, Rig Count

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Oil Prices Rally to Four Month High On Middle East, Rig Count

Crude prices gained, reversing earlier losses, on concerns that the violence in Yemen could disrupt Middle East output and a slowdown in US shale production.

Saudi Arabia and its allies continued airstrikes on rebel Yemen army units and Iran-allied Houthi Militiamen seeking to topple the government as a humanitarian crisis escalated.

While Yemen is not a major oil producer, it borders the Bab El-Mandeb strait, an important channel used by gulf producers to ship.

Oil has jumped by more than 21% on speculation that the situation in Yemen and the falling count in the US will help ease the global oil glut.

According to data from oil services provider Baker Hughes,  active US drilling rigs have reduced for a record 20th time to their lowest number since 2010 fuelling expectations that US output would flatten or drop.

“The market’s resilience right here points to the fact that people are looking forward to the idea that we will see production in North America come down,” Gene McGillian, senior analyst at Tradition Energy, told Reuters.

“The market continues to get a little bit of a wind in its sail from that.”

Light sweet crude for June delivery most recently fell 19 cents or 0.3% to $57.34 a barrel on the New York Mercantile Exchange to recover from an intraday low of $56.80 earlier in the session.

Brent for June delivery, the global benchmark, most recently slipped 12 cents or 0.2% to $65.13 a barrel on the London based ICE futures Exchange. The contact is now 19% up on the month.

The contract slipped 0.3% last week to snap a 5 week winning streak while rent continued its three week gaining streak to gain 2.9%

The Wall Street Journal, quoting two market participants, reported that oilfield services provide Genscape Inc told its clients that crude supplies to Cushing Okla., an important storage and delivery point for the Nymex contract, fell by 195,000 last week.

If the drop is confirmed by the Energy Information Administration, it would be its first decline since November.

To contact the reporter of the story: Jonathan Millet at john@forexminute.com