Oil price jumps to $49 US a barrel as EIA data shows less crude pumped

The price of North America's dominant blend of oil jumped by almost 10 per cent in less than two hours Monday to trade above $49 US a barrel for the first time in a month.

At 10 a.m. ET, the price for West Texas Intermediate was slightly down from Friday's close, changing hands at $43.75 per barrel. But that's when then Energy Information Administration lowered its forecasts for America's oil output.

The U.S. pumped out 9.3 million barrels of oil a day in June, about 100,000 less than initial reports indicated. It was also less than the country churned out in May, which was good news for oil traders who have been scared off by an oil glut that has seen the world pump as much as two million more barrels than the world economy needs every day at times this year.

All that excess oil is sitting in storage tankers, and that's what drove the price of a barrel below $38 as recently as last week.

The EIA's new numbers were enough to send the WTI price soaring. When the EIA report came out, oil started soaring and ending up settling at $49.20 a barrel level. That's more than 10 per cent above where it was before the report came out.

"I think the investor complacency we had earlier in the summer has made this market primed to overact to basically anything out there," said Scott Clemons, chief investment strategist at Brown Brothers Harriman Private Bank.

OPEC hints at slowdown

Crude prices were also buoyed by a statement from OPEC, suggesting the oil cartel may be willing to curtail production until prices come back to a higher level. "OPEC, as always, will continue to do all in its power to create the right enabling environment for the oil market to achieve equilibrium with fair and reasonable prices," the cartel said in its monthly bulletin.

"OPEC stands ready to talk to all other producers. But this has to be on a level playing field. OPEC will protect its own interests."

Some traders interpreted that clause as evidence that the Saudi-led group might be willing to turn off the taps in a meaningful way.

Monday is also the last day of August, and the oil future contract often has a volatile day on its last day of the month as traders rush to settle their positions ahead of the next month's activity. Short sellers who made a lot of money on oil's decline often have to settle their positions almost regardless of the cost by the end of the month

Bleak outlook

But at least according to the oil experts at Scotiabank, the market is still a ways away from seeing the three-digit oil prices the world saw for much of 2014. 

The bank's latest commodity price index forecasts a per-barrel price of $55, but not until the end of 2016.

Scotia's commodity specialist Patricia Mohr said Monday that while U.S. supplies of crude haven't been slowing, a key factor to watch will be whether Texas producers can stay resilient with crude at $40 to $45 a barrel.