Oil Prices Soar 12.3% On Hopes Of Production Cuts | Independent Newspapers Limited
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Oil Prices Soar 12.3% On Hopes Of Production Cuts

Posted: Feb 13, 2016 at 1:30 pm   /   by   /   comments (0)


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.

An Oil and Natural Gas Corp. well in an oil field on the outskirts of the western city of Ahmedabad, India. ENLARGE
An Oil and Natural Gas Corp. well in an oil field on the outskirts of the western city of Ahmedabad, India. PHOTO: REUTERS

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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.