Bloomberg
Crude prices in London and New York rebounded from the lowest closing levels since May 2009 as comments from Saudi Arabia’s oil minister on Thursday added to the most volatile market in three years.
West Texas Intermediate, the US grade, climbed as much as 2.6% in New York and Brent 2.2% in London. A measure of expected WTI futures movements and a gauge of options value was at the highest level since October 2011, data compiled by Bloomberg show.
While Ali al-Naimi, Saudi Arabia’s oil minister, said on Thursday that a slump in prices was temporary, he also said it would be “difficult, if not impossible” for Opec to curb its oil production amid a glut, Saudi Press Agency reported.
Prices rose immediately after his remarks, before ending the day at the lowest in five years. The nation accounted for about 13% of global oil output last year, BP Plc estimates.
“Many private investors are tempted to buy at these levels,” said Bjarne Schieldrop, chief commodities analyst at SEB in Olso. “However, at the moment Opec is not on the market as a back-stop, leaving the downside fully open.”
Crude has slumped about a quarter since Saudi Arabia led a decision last month by the Organisation of Petroleum Exporting Countries to maintain its collective output target. US oil producers continue to pump at record levels, contributing to a global glut and competing with the 12-member group for market share.
WTI for January delivery rose as much as $1.39 to $55.50 a barrel in electronic trading on the New York Mercantile Exchange and was up 64 cents to $54.75 at 1:31pm London time. The contract, which expired yesterday, fell $2.36 to $54.11 on Thursday. The more active February future gained 71 cents to $55.07. Total volume was about 13% above the 100-day average for the time of day. Prices have decreased 44% this year.
Brent for February settlement was up 1.1% at $59.91 a barrel on the London-based ICE Futures Europe exchange. It slid $1.91 to $59.27 yesterday, also the lowest close since May 2009. The European benchmark crude traded at a premium of $4.79 to WTI for February.
Implied volatility for at-the-money options in the front-month WTI contract increased to more than 51% today, data compiled by Bloomberg show. Brent volatility is also at the highest since 2011.
Oil markets are experiencing “temporary” instability caused mainly by a slowdown in the world economy, al-Naimi said, according to comments published yesterday by the Saudi Press Agency. Steady global economic expansion will resume, spurring demand, according to the minister, leading him to be “optimistic about the future.”
Opec, which supplies about 40% of the world’s oil, pumped 30.56mn barrels a day of crude in November, a Bloomberg survey of companies, producers and analysts shows. That exceeded its collective target of 30mn for a sixth straight month.
“The Saudi comments indicate that until we see signs of supply destruction the potential upside for crude seems limited,” Ole Hansen, head of commodity strategy at Saxo Bank, said by e-mail. “This is the first week in a while where buyers have dipped their toes back in the market.”
In Russia, the world’s largest crude producer, the economy must adapt to the reality of prices that could decline to as low as $40 a barrel, according to President Vladimir Putin. Oil’s collapse may be due to a battle for market share between traditional producers and shale companies, he said at his annual press conference in Moscow yesterday.
The US oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.
Production from the nation, the world’s biggest oil consumer, expanded to 9.14mn barrels a day through December 12, the Energy Information Administration said. That’s the highest level in weekly data that started in January 1983.
WTI will drop next week, a separate Bloomberg survey shows. Fifteen of 35 analysts and traders, or 43%, forecast futures will fall through December 26, while 11 predict a price advance.