Oil Prices Soar From 13-Year Low on Hopes of Production Cuts
13 February 2016 - 07:06AM
Dow Jones News
By Georgi Kantchev and Timothy Puko
Oil prices rallied on Friday, rebounding from a 13-year low the
previous day, on speculation of production cuts among some of the
world's biggest suppliers.
Light, sweet crude for March delivery settled up $3.23, or
12.3%, to $29.44 a barrel on the New York Mercantile Exchange, its
biggest gain in seven years. Brent, the global benchmark, gained
$3.02, or 10.1%, to $33.08 a barrel on ICE Futures Europe.
Oil prices had already been higher but pushed to larger gains
after the Baker Hughes weekly survey showed that U.S. weekly oil
rigs had declined by 30 rigs to 514.
West Texas Intermediate fell to $26.21 a barrel on Thursday, the
lowest settlement since May 6, 2003. Both benchmarks are still down
for the week, with Brent on track for a 7% loss and WTI down around
10%.
Prices have been rising since late trading on Thursday after The
Wall Street Journal posted translated comments from the United Arab
Emirates' energy minister about whether OPEC members are more open
to cutting output. The minister said they are "ready to cooperate,"
though he also said other countries must participate, too. That has
yet to happen, despite increasing talk of it in recent month.
"Every time someone comes out and says 'We're ready to
cooperate,' there's always a knee-jerk reaction," to buy, said
Peter Donovan, broker for Liquidity Energy in New York. "Prices
have come down so far, guys don't want to get caught [selling] at
the bottom."
Venezuela, meanwhile, proposed that OPEC and non-OPEC producers
should at least freeze output at the current level.
"An OPEC cut is still hard to see but this week the notion of an
OPEC 'freeze' was introduced and we find that easier to envisage,"
said Olivier Jakob of consultancy Petromatrix. According to Mr.
Jakob, a freeze of OPEC production wouldn't reduce supplies to the
market, but could provide a sentiment boost as it brings OPEC
supply management back into the equation.
Many market watchers, however, continue to be skeptical about
the chances of any agreement.
"We view this as further jawboning, with the likelihood of a
coordinated response on supply cuts very low," ANZ Bank said in a
report.
Prices likely would have gone up Friday even without speculation
about OPEC cutting output, Mr. Donovan said. Oil traders have been
betting aggressively against oil prices in recent weeks. And with
markets closed for a U.S. holiday on Monday, many will want to
close out those bets ahead of an extended weekend. That can cause a
short-term rebound as those traders buy up contracts to close out,
but wouldn't likely resolve the long-term trends pushing oil
lower.
A supply glut has dragged prices down over the past two years,
and top energy experts around the world have warned it shows no
signs of easing in the first half of this year. OPEC's policy, led
by its most influential member, Saudi Arabia, has been to pump at
full tilt in a bid to defend its market share against producers in
the U.S. and Russia.
U.S. oil inventories remain near levels not seen for this time
of year in at least the last 80 years, according to the U.S. Energy
Information Administration. With slower demand ahead due to
refineries going into planned maintenance, crude stocks are
expected to continue to increase.
"There is some concern that inventory tank tops will be tested,
particularly in the U.S.," said Michael Wittner , oil analyst at
Société Générale .
Still, analysts see some respite for oil prices in the second
half of the year.
"We do believe that Brent and [WTI] prices will rebound in the
second half of 2016 as more aggressive cutbacks in production are
forthcoming, particularly in the U.S.," said John Davies , head of
commodities research at BMI Research.
Gasoline futures recently gained 7% to $1.0074 a gallon. Diesel
futures gained 5.5% to $1.0329 a gallon.
Biman Mukherji contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Timothy
Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
February 12, 2016 14:51 ET (19:51 GMT)
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