Americas News
Crude Jumps 2.2 Percent on Same Messages About OPEC That Caused Recent Sell-Offs
Even though the source responsible for Tuesday's dismal crude market showing did nothing different to change trader outlook, traders on Thursday in yet another show of hypersensitivity reversed course and caused U.S. crude to surge 2.2 percent, on the notion that the Organization of the Petroleum Exporting Countries (OPEC) may adhere to its production cutback initiative until the end of this year after all.
Unsurprisingly, they also shrugged off more concrete and troubling news from the American Petroleum Institute, which reported that U.S. crude inventories rose unexpectedly last week, increasing by 1 million barrels contrary to analyst expectations of a 525,000 barrel decline.
Much of OPEC's anticipated actions at its June 22 meeting in Vienna has based on speculation from unnamed sources as well as allies such as Alexander Novak, energy minister for Russia, who on one hand has stated that the cartel may turn back on the taps in order to avoid a price shock due to declining production from members like Venezuela - but on the other has claimed with equal conviction that the production cuts could continue into next year if the market warrants.
Wednesday's rebound was caused by little more than a Gulf source familiar with the matter telling media that Saudi Arabia, other OPEC states, and non-OPEC allies aim to stick to their global reduction pact - and that they are ready to make gradual adjustments to offset any supply shortage if need be.
In short, exactly the same messages delivered by media produced dramatically different market results in the short span of 24 hours: West Texas Intermediate surged $1.48, or 2.2 percent, to $68.21 (after having fallen 7.6 percent over the last five trading sessions), while Brent shot up $2.11 to $77.50 per barrel.
The idea of OPEC turning back on the taps being tantamount to abandoning the output cuts was further discredited on Wednesday by the Russian central bank issuing a statement that a decline in oil prices would pose a risk to the country's financial sector: signifying it is more inclined to stay the course rather than boosting production and risking a further price decline.
Phil Flynn, senior market analyst at Price Futures Group Inc., said, "It seems that somebody in the central bank is taking notice of the big drop in oil prices and sending a signal of, 'Hey, wait a second. We don't want these prices to fall too far — that could pose a risk to the Russian economy."'
Meanwhile, Mohammad Barkindo, secretary general for OPEC, also seemed to be cautious of prices falling too far, inasmuch as high oil prices are required to spur industry investment, and in his opinion - which he expressed to conference delegates in Baku - the required oil sector investment in the period to 2040 is estimated at about $10.5 trillion to meet future oil demand expected to surpass 111 million barrels per day.
He said, "One of the greatest and most prescient challenges before us is ensuring that there will be adequate levels of investment in a predictable fashion," and he added that while the pace of investment has picked up this year there is not enough investments in long-cycle projects that are "the base load of future supply and the foundation of this industry's future".
Earlier this week, John Kilduff, founding partner at Again Capital, said of OPEC's likely reaction to the recent market sell-off is that it "is going to point directly to this price movement and say, `See, it's all speculation, the market is just modestly balanced now for the first time in a couple of year - and they're going to try to walk it back, so they're going to be very cagey over the next couple of weeks."
