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Oil rebounds on Saudi assurances Russia will extend supply cuts

Business News |

REUTERS

By Scott DiSavino | NEW YORK

NEW YORK Oil prices closed 1.5 percent higher on Friday, rebounding from five-month lows, following positive U.S. jobs data and assurances by Saudi Arabia that Russia is ready to join OPEC in extending supply cuts to reduce a persistent glut.

The market, however, remained in technically oversold territory with futures trading down as much as 19 percent from highs in mid April, prompting some speculators to exit their long positions.

Brent futures gained 72 cents, or 1.5 percent, to settle at $49.10 a barrel, while U.S. West Texas Intermediate crude climbed 70 cents, or 1.5 percent, to close at $46.22 per barrel.

After falling almost 5 percent on Thursday, both contracts continued to collapse overnight with WTI falling to $43.76, its lowest since Nov. 15, and Brent down to $46.64, its lowest since Nov. 30 when the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut production during the first half of 2017.

Both benchmarks pared losses after Saudi Arabia’s OPEC Governor Adeeb Al-Aama told Reuters that OPEC and non-OPEC nations were close to agreeing to extend a deal to curb production by 1.8 million barrels per day (bpd) for six months from Jan. 1.

“Based on today’s data, there’s a growing conviction that a six-month extension may be needed to rebalance the market, but the length of the extension is not firm yet,” the Saudi official said.

OPEC sources said on Thursday that OPEC is likely to extend cuts when it meets on May 25 but that a deeper cut is unlikely.

In the United States, meanwhile, job growth rebounded sharply in April and the unemployment rate dropped to 4.4 percent, near a 10-year low, according to government data.

“The jobs report is extremely positive for the U.S. economy…and should help boost oil demand,” said Mark Watkins, regional investment manager for U.S. Bank’s private client group in Park City, Utah.

Despite gains on Friday, both benchmarks declined for a third week in a row – Brent by about 5 percent and WTI by 6 percent – in their longest losing streak since November.

“The energy complex is slowly succumbing to an opinion that this year’s OPEC production cuts have been ineffective,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

“We feel that the (OPEC) cartel has come to a fork in the road in which the current agreement will be abandoned or steps will need to be taken to double down on current efforts by increasing production curtailments,” Ritterbusch said.

Brent traded volumes on Thursday reached a record high of nearly 542,000 contracts, suggesting that hedge funds had accelerated reductions to their long positions. (tmsnrt.rs/2oSQUu5).

Pierre Andurand, who runs one of the biggest hedge funds specializing in oil, liquidated his fund’s last long positions in oil last week and is running a very reduced risk at the moment, a market source familiar with the development said.

“It is now-or-never for oil bulls,” said U.S. commodity analysis firm The Schork Report. “They either put up a defense here or risk further emboldening the bears for a run at the $40 threshold (for WTI).”

(Additional eporting by Dmitry Zhdannikov in London and Henning Gloystein, Mark Tay and Roslan Khasawneh in Singapore; Julia Simon in New York; Editing by Marguerita Choy and David Goodman)

US oil settles at $43.49 a barrel, up 4.27 percent, or $1.78

An oil pump jack in Russia

Sergei Karpukhin | Reuters
An oil pump jack in Russia

Oil prices rose more than 4 percent on Thursday on comments from the Saudi oil minister about possible action to stabilize prices and as the International Energy Agency forecast crude markets would tighten in the second half of 2016.

Saudi Energy Minister Khalid al-Falih said OPEC members and non-members would discuss the market situation, including any action that may be required to stabilize prices, during an informal meeting on Sept. 26-28 in Algeria.

The comments by the minister of the world’s top oil exporter triggered fund buying and some algorithmic trades, giving a boost to prices, traders and brokers said.

However, most traders remain skeptical of the outcome, expecting a repeat of the Doha meeting in April when talks fell through after Saudi Arabia backed out, citing Iran’s refusal to join in a so-called production freeze.

The IEA, which advises large developed economies on energy policy, forecast a healthy draw in global oil stocks in the next few months that would help ease a glut that has persisted since 2014 on the back of rising OPEC and non-OPEC supply.

Venezuela oil freeze to get OPEC cold shoulder?

Venezuela oil freeze to get OPEC cold shoulder?  

“Oil’s drop … has put the ‘glut’ back into the headlines even though our balances show essentially no oversupply during the second half of the year,” the Paris-based IEA said in its monthly report.

“Our crude oil balance indicates a hefty draw in the third quarter after a lengthy stretch of uninterrupted builds.”

U.S. light crude rose $1.78, or 4.27 percent to settle at $43.49 a barrel. North Sea Brent crude was up $1.89, or 4.29 percent, at $45.92.

Global demand growth is expected to decline from 1.4 million barrels per day in 2016 to 1.2 million bpd in 2017, the IEA said, after a revision to the global economic outlook.

Still, the overall takeaway from the IEA’s report has been more bullish than bearish.

An increase in Saudi Arabia’s output to a record 10.67 million bpd in July was due to seasonal demand during summer and in part to meet higher demand from customers, the Saudi oil minister said.

Crude falls on mixed output signals from OPEC

Crude falls on mixed output signals from OPEC  

OPEC expects demand for its crude in 2017 to average 33.01 million bpd, suggesting a supply surplus of 100,000 bpd if the producer group keeps output steady.

Analysts at brokerage Bernstein said in a note they expect high inventories, especially of refined fuel, to spur further refinery run cuts in the next few months.

“This expected diminishing product inventory overhang will lead to a sustained tightening of oil market fundamentals and oil prices should be well above current levels,” they said.

Many analysts say they see oil prices trading within a range for the next few weeks.

“As long as oil holds $40, we should be at the bottom,” Phil Flynn, senior energy analyst at Price Futures Group said.

“The failure to follow through on bear market closes suggest we are near the low.”