Oil advanced as Goldman Sachs said the market moved into a deficit earlier than expected and China’s refineries processed crude at record rates.
Futures surged as much as 1.7 percent in New York and London. The market shifted into deficit this month, a quarter earlier than expected, on strong demand and falling production, Goldman Sachs said in a report.
The bank raised its price estimates and projected a return to surplus early next year. Chinese plants processed 10.93 million barrels a day in April, while domestic crude output fell to the lowest in 14 months, according to government data.
Oil has rebounded after falling earlier this year to the lowest since 2003 amid signs the worldwide glut will ease as U.S. output declines.
The global surplus in the first half of 2016 is smaller than previously estimated because of robust demand in India and other emerging nations, the International Energy Agency said in a report Thursday.
“The physical rebalancing of the oil market has finally started,” Goldman analysts including Damien Courvalin and Jeffrey Currie wrote in the report dated May 15. “We believe the market has likely shifted into deficit in May.”
West Texas Intermediate for June delivery increased as much as 79 cents to $47 a barrel on the New York Mercantile Exchange, and traded at $46.76 by 1:28 p.m. Hong Kong time.
The contract slid 1.1 percent to close at $46.21 on Friday, paring the 7.5 percent advance over the previous three sessions amid supply outages from Nigeria to Canada.
Total volume traded was about 15 percent above the 100-day average. Prices have climbed more than 75 percent from the February low.
Brent for July settlement increased as much as 83 cents to $48.66 a barrel on the London-based ICE Futures Europe exchange. The contract declined 25 cents to close at $47.83 on Friday. The global benchmark crude was at a premium of 99 cents to WTI for July.
Goldman increased its WTI price forecasts for the second quarter through the fourth quarter, while raising its full-year 2016 projection to $44.60 a barrel, from $38.40, according to the report.
There will be a more gradual decline in inventories in the second half than previously estimated and a return to surplus in the first quarter of 2017, with low-cost production continuing to grow, Goldman said.
“There is evidence that the market is moving back toward balance,” Michael McCarthy, chief strategist at CMC Markets in Sydney, said by phone. “Given the proximity to the top of the broader trading range between $48 and $50 a barrel, it seems less likely that oil can push significantly higher.”
China reduced crude production in April by 5.6 percent from a year ago to 16.59 million metric tons, the lowest level since February 2015, according to data from the National Bureau of Statistics. The decline rate was the most since November 2011.
Rigs targeting crude in the U.S. fell to 318, after 10 were idled last week, Baker Hughes Inc. said Friday. Explorers have cut more than 1,000 machines since the start of last year.
OPEC kept forecasts for global supply and demand unchanged in its last monthly assessment before members meet to review the market on June 2.