OIL PRICES JUMPS
Crude prices surged from the lowest closing levels since May 2009 as comments from Saudi Arabia's oil minister yesterday added to the most volatile market in three years.
West Texas Intermediate climbed 4.5 percent in New York, the biggest gain since August 2012. Both WTI and Brent rose more than 5 percent during the session. 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 yesterday 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, the 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 percent of global oil output last year, BP Plc estimates.
"Oil continues to find value buyers when it falls to these levels," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "This is still a weak market. We're looking at more supply, not less."
WTI for January delivery rose $2.41 to settle at $56.52 a barrel on the New York Mercantile Exchange. The contract, which expired today, fell 4.2 percent to $54.11 yesterday. The more active February future gained $2.77, or 5.1 percent, to $57.13. Prices dropped 2.2 percent this week, and are down 43 percent this year.
Brent for February settlement increased $2.11 to $61.38 a barrel on the London-based ICE Futures Europe exchange. The North Sea oil was little changed this week and down 45 percent in 2014. The European benchmark crude closed at a $4.25 premium to WTI for February delivery.
Crude has slumped about a quarter since Saudi Arabia led a decision last month by the Organization of Petroleum Exporting Countries to maintain its collective output target. U.S. oil producers continue to pump at record levels, contributing to a global glut and competing with the 12-member group for market share.
Implied volatility for at-the-money options in the front-month WTI contract increased to more than 51 percent 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 shouldn't be expected to cut output while other producers continue to expand, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Dec. 14. The group will refrain from cutting output even if oil prices fall as low as $40 a barrel and will wait at least three months before considering an emergency meeting, al-Mazrouei.
"Naimi appeared to be relaxed in his comments," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "His colleague from the UAE was a lot more enlightening. He called out the U.S. shale producers."
OPEC, which supplies about 40 percent of the world's oil, pumped 30.56 million barrels a day of crude in November, a Bloomberg survey of companies, producers and analysts shows. That exceeded its collective target of 30 million for a sixth straight month.
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 U.S. 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 and Permian in Texas and the Bakken in North Dakota. The three shale plays pumped record amounts of oil in November, according to the American Petroleum Institute.
Production from the nation, the world's biggest oil consumer, expanded to 9.14 million barrels a day through Dec. 12, the Energy Information Administration said. That's the highest level in weekly data that started in January 1983.
"OPEC appears to want to break the U.S. shale producers," Flynn said. "Their main goal is to subdue production and they seem to be having some success. Investment is being reduced and rig counts are heading lower."
WTI will drop next week, a separate Bloomberg survey shows. Fifteen of 35 analysts and traders, or 43 percent, forecast futures will fall through Dec. 26, while 11 predict a gain in prices and nine said there will be little change.
"Investors are probably afraid to get any more short," Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Massachusetts, said by phone. "Prices have already fallen a great deal. There's a fear that an event effecting supply or sentiment could happen at any moment."
Gasoline futures rose 3.23 cents, or 2.1 percent, to close at $1.5595 a gallon on the Nymex. Diesel advanced 2.35 cents, or 1.2 percent, to settle at $1.9622.
Regular gasoline at the pump declined 2.3 cents to $2.45 a gallon yesterday, the least expensive since May 2009, according to Heathrow, Florida-based AAA, the nation's biggest motoring group.
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BP and its partners in Azerbaijan's giant ACG oil production complex agreed Thursday to extend the production sharing contract by 25 years to 2049 and to increase the stake of state-owned SOCAR, reducing the size of their own shares.
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