Oil Rises to Seven-Week High as Saudis to Work With Producers

The Peak Oil Myth and the Rise of the Electric Car
  • Saudis to work to curb oil fluctuations: Saudi Press Agency
  • Gasoline, diesel climb as March contracts near expiration

Crude closed at the highest in seven weeks as Saudi Arabia said it would work with other producers to curb market fluctuations and China’s central bank stepped up efforts to support the economy.

West Texas Intermediate oil increased 3 percent. Saudi Arabia wants a stable oil market, according to state-run Saudi Press Agency. China reduced the amount of cash the nation’s lenders must lock away. The Organization of Petroleum Exporting Countries reduced production by 79,000 barrels a day this month, according to a Bloomberg survey.

"It’s the Saudis’ turn to talk up the market today," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "The market is giving the oil producers the benefit of the doubt now. The move by the Chinese to cut the required reserve ratio is also giving the market support."

Prices slipped to a 12-year low on Feb. 11 in New York amid speculation a worldwide surplus will be prolonged with U.S. crude stockpiles at the highest level in more than eight decades and the outlook for increased exports from Iran. A proposal to freeze output by Saudi Arabia and Russia is achievable and prices may rise to as high as $50 a barrel by the end of the year, Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu told CNBC.

WTI for April delivery rose 97 cents to $33.75 a barrel on the New York Mercantile Exchange. It was the highest close since Jan. 6. Prices advanced 0.4 percent in February, the first monthly gain since October.

OPEC Production

Brent for April settlement increased 87 cents, or 2.5 percent, before expiring at $35.97 a barrel on the London-based ICE Futures Europe exchange. Brent closed at a $2.22 premium to WTI, after reaching an 11-week high of $2.86 on Feb. 26. The more-active May contract climbed 3.2 percent to $36.57.

OPEC pumped an average 33.06 million barrels a day in February, according to the survey of oil companies, producers and analysts. Nigeria and Iraq led declines, while Iranian production climbed to the highest level in more than three years. January output was the highest in Bloomberg data going back 20 years.

Gasoline Rally

Gasoline and diesel futures also climbed as the February contracts expired. U.S. gasoline supplies fell 2.24 million barrels to 256.5 million in the week ended Feb. 19, the first decline since November, according to an Energy Information Administration report on Feb. 24. Demand rose 1.8 percent to 9.06 million barrels a day through Feb. 19, averaged over four weeks.

March gasoline futures rose 3.3 percent to $1.0497 a gallon. Diesel for March delivery advanced 2.4 percent to $1.076. The more-active April gasoline contract rose 2 percent to $1.0497, while April diesel climbed 2.5 percent to $1.0937.

"Gasoline demand and falling crude output are behind the rally," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. "The rally really took off last Wednesday when the gasoline storage number showed the first decline in 15 weeks. The gasoline supply drop seems to have put a bottom in the market."

U.S. Output

U.S. crude production fell by 33,000 barrels a day to 9.1 million in the week ended Feb. 19, the lowest since October, EIA data show. Rigs targeting oil in the nation’s fields fell to 400 last week, the lowest since December 2009, Baker Hughes Inc. said on its website Feb. 26. Nationwide crude stockpiles rose 3.5 million barrels to 507.6 million, the most since 1930.

"We should see another crude production cut this week, especially given the drop in the rig count," Yawger said. "I don’t think we will see an output drop of 100,000 barrels, but if we do fall below 9 million barrels a day the impact will be huge."

Hedge funds and other speculators have increased net-long positions in WTI futures and options to the highest level since November, U.S. Commodity Futures Trading Commission data show. Speculators’ net-long position in WTI rose by 13,385 contracts to 110,554 in the week ended Feb. 23. Shorts, or bets that prices will decline, slipped 6.7 percent while longs climbed 0.2 percent.

Money managers increased their bullish stance on Brent crude to the highest in at least five years. Funds boosted net-longs in Brent by 35,416 contracts to 320,289 in the week to Feb. 23, according to data published Monday by ICE Futures Europe. That’s the highest since at least early 2011.

Low prices are affecting oil companies:

  • Petroleo Brasileiro SA got a $10 billion loan from China Development Bank Corp. as the state-owned company faces more than double that amount in maturities over the next two years. The loan is part of an agreement to supply crude to China, the Rio de Janeiro-based company said in a filing on Friday.
  • Italy’s largest oil producer Eni SpA reported a fourth-quarter loss on Friday even as crude and gas output rose to the highest in five years.
  • Husky Energy Inc., the producer controlled by Hong Kong billionaireLi Ka-Shing, reported a fourth-quarter loss that narrowed from a year earlier.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE