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Oil prices higher on supply cut talk

Oil prices higher on supply cut talk
January 29
05:12 2016

Global benchmark Brent crude futures rose on Friday, set for a second weekly gain, moving 6.5 percent higher so far this week, spurred higher by hopes of a deal among oil-producing countries to tackle a growing supply glut.

Brent futures LCOc1 have jumped over 25 percent since hitting an intraday low of $27.10 a barrel on Jan. 20 and are heading for their fourth straight session of gains.

Brent had risen 38 cents to $34.27 a barrel by 0337 GMT, after ending up 79 cents, or 2.4 percent, at $33.89 on Thursday.

U.S. crude CLc1 climbed 35 cents to $33.57 a barrel, having settled up 92 cents, or 2.9 percent, at $33.22 on Thursday. U.S. crude is also set for a 4.6 percent weekly gain.

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“Despite the unlikely scenario of supply cutbacks in the oil market, prices have found some support above $30 a barrel. We believe this basis is fragile, with fundamentals expected to weaken in the coming weeks,” ANZ said on Friday.

“The likelihood of an agreement between producers is extremely low. In the absence of a supply cut, there is further downside risk to prices in the short term.”

Brent futures rallied as much as 8 percent after Russia said on Thursday that OPEC’s largest producer Saudi Arabia had proposed oil production cuts of up to 5 percent in what would be the first global deal in over a decade to help clear a glut of crude and prop up sinking prices.

“We remain highly sceptical that such a meeting will result in credible cuts in supply; thus, we see this as nothing more than an attempt to shift market sentiment, and we do not expect that it will change the physical market imbalance,” Barclays said Thursday, referring to meetings between OPEC members and Russia.

“The price path implied by our forecasts, of Brent trading less than $40 a barrel for at least two quarters, is required for the balancing process to take place, paving the way for a more sustainable increase in prices.”

London-based capital market analysts Edison Investment Research has reduced its 2016 oil price forecast to $40 a barrel from $60.

“The oil markets have been in turmoil now for 16 months, with January 2016 trading the most tumultuous we have seen in years,” said Edison analyst Ian McLelland.

Oil volatility has climbed to its highest since 2009 as traders try to price in the uncertainty around supply cuts. At-the-money implied volatility for both WTI and Brent has surged this week. Implied volatility is a measure of expectations for future market price turbulence.

Outright close-to-close price volatility is also at 2008/2009 levels.

(Reporting by Meeyoung Cho; Additional reporting by Henning Gloystein in Singapore; Editing by Joseph Radford and Christian Schmollinger).  source http://www.reuters.com/article/us-global-oil-idUSKCN0V6345

 

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