Oil Caps Biggest 2-Week Gain in 17 Years Amid Volatility

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Crude oil capped the biggest two-week rally in 17 years on speculation a falling rig count will curb U.S. production growth. Price volatility rose to the highest in almost six years.

Brent crude jumped 18 percent in the past 10 trading days, the most since March 1998. A volatility index gauging price fluctuations in West Texas Intermediate crude rose this week to to the highest since 2009.

Oil has rebounded as companies including Statoil ASA, BP Plc and Royal Dutch Shell Plc have reduced investments in response to the market’s collapse. U.S. drillers pulled more rigs off oil fields, according to data from Baker Hughes Inc. Friday. Saudi Arabia cut prices for March exports to Asia to the lowest in at least 14 years, signaling OPEC’s largest producer may continue to fight for market share

“We are establishing a bottom,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. “In the long run, probably $60 is going to be your pivot point. Usually you have high volatility when there is a disagreement on where the price should be.”

Brent for March settlement increased $1.23, or 2.2 percent, to $57.80 a barrel on the London-based ICE Futures Europe exchange, up 9.1 percent this week. Even after the recent rally, Brent has still fallen about 50 percent from its June 19 high of $115.71.

Price Volatility

West Texas Intermediate for March delivery climbed $1.21, or 2.4 percent, to $51.69 a barrel on the New York Mercantile Exchange, up 7.2 percent this week. Total volume was about 72 percent above the 100-day average for the time of day. The European benchmark crude traded at a premium of $6.11 to WTI.

The CBOE Crude Oil Volatility Index, which measures price fluctuations using options of the U.S. Oil Fund, ended at 63.14 Thursday. The U.S. Oil Fund, the biggest U.S.-listed oil exchange-traded fund, holds WTI futures.

“There are signs that fundamentals are changing,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We are seeing historical drops in the rig count and millions of dollars of spending cuts. Volatility is there because there is still a lot of uncertainty in the market.”

Spending Cuts

Statoil will deepen spending cuts by 30 percent to $1.7 billion from 2016 and reduce capital expenditure to $18 billion this year from earlier targeting $20 billion, the Stavanger, Norway-based company said Friday. The move followed similar announcements by competitors including Shell, BP and Chevron Corp. that they would cut billions of dollars in investments.

U.S. companies pulled 83 oil rigs out of fields in the latest week, following 94 in the previous week, according to Baker Hughes data.

U.S. production is still growing despite the drop in the rig count. Crude inventories expanded to 413.1 million barrels in the week ended Jan. 30, the most in weekly records compiled since August 1982, according to the Energy Information Administration.

In Europe, oil traders are storing 5.799 million metric tons of gasoline, diesel and other processed fuels in independent tanks in Amsterdam, Rotterdam and Antwerp, PJK International data show. That’s the highest level in estimates dating back to 1995, Pieter Kulsen, the Breda, Netherlands-based company’s founder, said by phone.

‘Still Weak’

“The fundamentals are still weak,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “It’s probably going to take months before production starts to slow.”

Saudi Arabian Oil Co. reduced its Arab Light official selling price for March by 90 cents to $2.30 a barrel below a Middle East benchmark, an e-mailed statement on Thursday showed. The state-owned company raised the grade’s premium for sales to the U.S. after six months of cuts.

Saudi Arabia led a decision in November by the Organization of Petroleum Exporting Countries to maintain its collective output target of 30 million barrels a day. The 12-member group, which pumps about 40 percent of the world’s oil, produced 30.9 million barrels a day in January, exceeding its quota for an eighth straight month.

WTI may drop next week, according to a Bloomberg News survey of analysts and traders. Twelve of 32 respondents, or 38 percent, predict futures will decline through Feb. 13, while 10 forecast an increase.

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