Crude Oil Rises From 12-Year Lows as Traders Assess Market Rout

What Impact Will Iranian Oil Have on the Markets?
  • Brent fell below $30 a barrel Wednesday first time since 2004
  • Oil-export curbs on Iran could be lifted as early as Monday

Crude oil advanced as investors reassessed the reasons for a drop in futures to a 12-year low.

Oil rose more than 2 percent in New York and London. Global benchmark Brent rebounded after sliding below $30 a barrel Wednesday for the first time since April 2004 amid speculation sanctions on Iran may be lifted by next Monday, paving the way for increased shipments. U.S. equities rose Thursday after the biggest selloff in three months.

"We’re getting a bit of a pause after the big drop," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $128 billion of assets. "Stocks are up a bit after a big drop yesterday."

Brent capped a third annual loss in 2015 as the Organization of Petroleum Exporting Countries effectively abandoned production limits amid a global surplus. Iran is trying to regain its lost market share and doesn’t intend to pressure prices, officials from its petroleum ministry and national oil company said this month. U.S. gasoline supplies logged the biggest two-week gain on record, according to U.S. government data on Wednesday.

WTI for February delivery climbed 72 cents to settle at $31.20 a barrel on the New York Mercantile Exchange. Prices slid below $30 Tuesday for the first time since December 2003. Total volume traded was 70 percent above the 100-day averageat 4:11 p.m.

Contract Expires

Brent for February settlement, which expired Thursday, also gained 72 cents to $31.03 a barrel on the London-based ICE Futures Europe exchange. The more-active March contract increased 60 cents to close at $30.88. February Brent ended trading at 17-cent discount to WTI, while the discount on March contracts was $1.23.

The relative strength index for Brent crude was below the 30-point threshold that suggests prices have fallen too rapidly. Brent’s 14-day RSI was near 26.

U.S. crude inventories rose 234,000 barrels to 482.6 million in the week ended Jan. 8, according to a report Wednesday from the Energy Information Administration. Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI, rose 97,000 barrels to a record 64 million.

"The Brent-WTI spread is growing because Iranian shipments should increase with the lifting of sanctions and there was a smaller-than-anticipated increase in Cushing stocks," said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. "The Iran headline has a bigger impact on waterborne crudes."

Iranian Plans

Iran, the fifth-biggest OPEC member, will increase production by 100,000 barrels a day, or 3.7 percent, a month after sanctions are lifted and by 400,000 in six months, according to the median estimate of 12 analysts and economists surveyed by Bloomberg. Oil Minister Bijan Namdar Zanganeh has pledged to boost output by half a million barrels a day within weeks of the end of sanctions and by the same amount again in six months.

"It’s turned out that $30 is a key psychological level and we’re showing some resilience," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "The lifting of the Iran sanctions is looking like the next catalyst for the market."

Energy companies led gains on the Standard & Poor’s 500 Index. The S&P 500 Oil & Gas Exploration and Production Index increased 3.6 percent. Williams Cos., a pipeline company, surged 34 percent, making it the best performer on the S&P 500.

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