Guarded Optimism as Oil Prices Surge 12 % Friday

Source: THISDAY LIVE

There was cautious optimism Friday as global crude oil prices surged as much as 12 percent after a report once again suggested OPEC might finally agree to cut production to reduce the world glut, while a bounce in stock markets fed appetite for risk.

Brent crudeclosed up $3.30 at $33.36 a barrel in New York after falling below $30 on Thursday.

After sinking to a 12-year low of $26.05 on Thursday, US crude settled up 12%, or $3.23, to $29.44 a barrel - its biggest one-day rise since 2009.

But despite the strong daily gain, oil prices were poised to end the week down as much as 5 percent, Reuters noted.
United Arab Emirates' energy minister had said the Organization of the Petroleum Exporting Countries was willing to cooperate on an output cut after crude futures settled in US trade.

Many traders were skeptical at first about the report, noting that Venezuela and Russia had tried in vain earlier in the week to stir Saudi Arabia and other major producers into agreeing to output cuts.

Nigeria, an OPEC member country, had called for an emergency meeting to address collapsing prices that had drained the coffers of Africa’s largest economy.

Last month, Minister of State for Petroleum, Dr. Ibe Kachikwu, in Abu Dhabi said he expected an extraordinary meeting of the global oil cartel in “early March” to discuss the continued plunge in prices.

Kachikwu’s push for an emergency meeting was however opposed by the United Arab Emirates, which like Saudi Arabia had resisted calls for production cuts by the oil cartel in order to retain market share.

After a 75 percent price slump since mid-2014 that has taken crude prices to more than 12-year lows, many were inclined to believe that a rebound was due sooner or later if production tightens or demand picks up.

"We expect declining US oil production, in particular, to drive the oil price back up to $50 per barrel by the end of the year," Frankfurt-based Commerzbank said in a note.

U.S. crude contracts over the next five years were trading under $50 a barrel on Friday, rising above that level only from November 2021 onwards.

U.S. crude's front-month CLc1 settled up $3.23, or 12.3 percent, at $29.44 per barrel, reaching a session high of $29.66. It hit a 12-year low of $26.05 the previous day. For the week, it lost 4.7 percent.

Brent's front-month LCOc1 closed up $3.30 at $33.36 a barrel, having slid below $30 on Thursday. Weekly losses were pared to 2 percent. Prices extended gains after data showed an eighth straight weekly drop in the number of US rigs drilling for oil. Oil also got a boost from the rally in global equity markets.

Some cited Monday's Presidents Day holiday in the United States, saying fewer players wanted a short position in oil ahead of the longer weekend break for the New York crude market.

But others, like Tyche Capital Advisors' Tariq Zahir, were hoping to profit again from bearish bets once the rally peaks. "It gives me great opportunity to put out new shorts in crude spreads," he said.

Many expected wilder price swings in coming weeks.
"It's not a one-way price movement anymore," said ABN AMRO's senior energy economist Hans van Cleef. "We will see a period of high volatility."