Oil Prices Soar 12.3% on Hopes of Production Cuts
13 February 2016 - 10:00AM
Dow Jones News
By Timothy Puko
Oil prices surged to their biggest one-day gain since the
financial crisis, rebounding from a 13-year low on speculation that
the world's biggest exporters may cut output.
Light, sweet crude for March delivery gained $3.23, or 12.3%, to
$29.44 a barrel Friday on the New York Mercantile Exchange, marking
the largest one-day percentage gain since February 2009. But the
contract ended the week down 4.7% and it is down nearly 21% year to
date.
Friday's rally was the latest dramatic move in the energy
market, breaking a six-session losing streak and coming after money
managers had placed a near-record amount of bearish bets on
crude.
Prices have plummeted more than 70% from the highs of 2014 as
the world's biggest producers, including Saudi Arabia, Russia and
the U.S., are still pumping at near-record pace in order to compete
for customers.
The week started with warnings from government agencies around
the world that the oil glut was getting bigger, not smaller, but it
ended with hopes that that is about to change.
The rally began late Thursday after The Wall Street Journal
posted translated comments from the United Arab Emirates' energy
minister about whether members of the Organization of the Petroleum
Exporting Countries are more open to cutting output. The minister
said they are all "ready to cooperate," though only with "total
cooperation from everyone" outside of the cartel, too. That has yet
to happen, despite increasing talk of it in recent months.
Analysts described the immediate move higher as speculation,
noting similar rhetoric from OPEC members has not led to
cooperation in the past. But with a three-day U.S. holiday weekend
coming and a historical low point reached on Thursday, many traders
bought oil anyway.
"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."
Brent, the global benchmark, settled up $3.30, or 11%, at $33.36
a barrel on ICE Futures Europe. Brent still finished the week
lower, down 70 cents, or 2.1%, and down nearly 11% year to
date.
"There's going to be a lot of market noise over the next few
months, but we don't really see anything changing in the near
term," said Michael Tran, commodity strategist at RBC Capital
Markets.
There are some, however, who do believe OPEC could be moving
toward restraint, if not outright cutbacks. Venezuela 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.
Gasoline futures settled up 10.15 cents, or 10.8%, at $1.0432 a
gallon. Diesel futures gained 9.02 cents, or 9.2%, to $1.0693 a
gallon.
Georgi Kantchev contributed to this article.
Write to Timothy Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
February 12, 2016 17:45 ET (22:45 GMT)
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