Oil Futures Climb After Saudi Arabia Supply Said to Fall

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Brent gained the most in four months and West Texas Intermediate rebounded from a two-year low after market supplies from Saudi Arabia, the world’s biggest crude exporter, were said to have dropped.

Saudi Arabia supplied 9.36 million barrels a day in September, down 328,000 from the previous month, according to a person familiar with the country’s policy. Oil, which has collapsed into a bear market on concerns over rising production, also advanced on improved economic reports ranging from manufacturing in Germany and China to U.S. jobs.

“The Saudis are limiting the amount of crude oil available to the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market is using that as a bullish reason. Whether or not there will be a significant production cut from Saudi Arabia remains to be seen.”

Brent for December settlement rose $2.12, or 2.5 percent, to $86.83 a barrel on the London-based ICE Futures Europe exchange. It was the steepest one-day gain since June 12. The volume of all futures was 8.6 percent above the 100-day average.

WTI for December delivery climbed $1.57, or 2 percent, to $82.09 a barrel on the New York Mercantile Exchange. Volume was 7.8 percent above the 100-day average. WTI dropped $1.97 to $80.52 yesterday, the lowest close for a front-month contract since June 28, 2012. Brent traded at a premium of $4.74 to WTI on ICE, compared with $4.19 yesterday.

Saudi Production

Saudi Arabia’s market production fell from 9.69 million barrels a day in August, according to the person, who asked not to be identified, citing policy. Total output, some of which went into storage, was 9.7 million barrels a day last month, up from 9.6 million in August.

The country reduced supply to the market probably because it wanted to store the oil for its own use or to sell it in the future when prices rise, said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion.

Saudi Arabian refiners processed 2.17 million barrels a day of crude in August, the highest amount in the Joint Organisations Data Initiative records going back to 2002. The new Satorp refinery, a joint venture between Total SA and state-run Saudi Aramco, reached full processing capacity of 400,000 barrels a day by Aug. 1.

New Refinery

“The decline in exports, while production is stable (or slightly rising), reflects increased domestic crude demand with the commissioning of new refinery capacity in Saudi Arabia,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, wrote in a message. “This is not yet a signal that Saudi Arabia has taken a step forward in markedly reducing oil supply with an objective to shore up prices.”

The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world’s oil supply, pumped 30.47 million barrels a day in September, the most since August 2013, its monthly report on Oct. 10 showed.

“Saudi Arabia can’t sell all its oil,” said Michael Hiley, head of energy OTC at LPS Partners Inc. in New York. “Clearly the market is sensitive to potential OPEC production cuts and reacts to the headline without delving into the details of the story.”

Bear Market

Both Brent and WTI had dropped more than 20 percent from this year’s peak in June, meeting a common definition of a bear market, on concern global supply is outpacing demand.

OPEC needs to reduce output by 500,000 barrels a day because the market is oversupplied, Samir Kamal, Libya’s governor to the 12-member group, said yesterday.

The group is scheduled to meet on Nov. 27 in Vienna. The group is studying Venezuela’s request for a special meeting, President Nicolas Maduro said on state television yesterday.

U.S. crude stockpiles expanded 7.11 million barrels last week, according to the Energy Information Administration reported, compared with a 3 million increase predicted in a Bloomberg News survey. Domestic production is forecast to rise next year to the highest level since 1970, according to EIA forecasts.

In China, the preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.4, exceeding the median estimate of 50.2 in a Bloomberg News survey, which was also the level of September’s final reading.

In Germany, the Purchasing Managers Index for the industry jumped to 51.8 from 49.9 in September, London-based Markit Economics said today. Economists surveyed by Bloomberg News had predicted a drop to 49.5. A reading below 50 indicates contraction.

Fewer Americans filed applications for unemployment benefits over the past month than at any time in 14 years, a Labor Department report showed today.

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