BLBG: Oil Rebounds From Five-Year Low as Saudi Comments Add Volatility
Crude prices in London and New York rebounded 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, the U.S. grade, climbed as much as 2.6 percent in New York and Brent 2.2 percent 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 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 of oil, 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 crude output last year, BP Plc estimates.
Oil Prices
“Many private investors are tempted to buy at these levels,” said Bjarne Schieldrop, chief commodities analyst at SEB AB in Olso. “However, at the moment OPEC is not on the market as a back-stop, leaving the downside fully open.”
Saudi-Led
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 boosting speculation that they’ll compete 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 68 cents to $54.79 at 10:39 a.m. London time. The contract, which expires today, fell $2.36 to $54.11 yesterday. The more-active February future gained $1.23 to $55.03. Total volume was about 40 percent above the 100-day average. Prices have decreased 45 percent this year.
Brent for February settlement was up 1.2 percent at $60 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 $4.99 to WTI for February.
Implied Volatility
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, which supplies about 40 percent of the world’s oil, pumped 30.56 million barrels a day in November, a Bloomberg survey of companies, producers and analysts shows. That exceeded its collective target of 30 million 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 A/S, said by e-mail. “This is the first week in a while where buyers have dipped their toes back in the market.”
$40 Oil
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 in Texas and the Bakken in North Dakota.
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.
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 price advance.
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net
To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Alaric Nightingale, Grant Smith
