Oil Rises to Four-Week High Amid OPEC Output Freeze Speculation

  • Saudi Arabia signals it’s ready to discuss stabilizing markets
  • Russia open to freeze talks ‘if necessary’: Saudi newspaper

Oil Extends Best Week Since April

Oil climbed to the highest close in more than four weeks amid speculation that crude producers will revive talks to stabilize prices.

Futures gained 2.8 percent in New York. Prices advanced 6.4 percent last week as Saudi Arabia signaled it’s prepared to discuss stabilizing markets at informal OPEC discussions next month. Russia is open to talks for a joint output freeze “if necessary,” Energy Minister Alexander Novak told Saudi Arabian newspaper Asharq Al-Awsat. The Bloomberg Commodity Index rose the most in a month as the dollar weakened.

Oil has rebounded more than 10 percent since closing below $40 a barrel and tumbling into a bear market earlier this month. Saudi Arabian Energy Minister Khalid Al-Falih said in a statement last week that talks with members of the Organization of Petroleum Exporting Countries and other producers may result in action to stabilize the market, according to the state-run Saudi Press Agency.

"This is a market that was looking for a reason to buy at a low price," said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. "As we get close to $50, buying should dry up. People will wonder about the fact that nothing has been agreed to and the meeting is still in the future."

West Texas Intermediate for September delivery advanced $1.25 to settle at $45.74 on the New York Mercantile Exchange, the highest close since July 15. Total volume traded was about 3 percent above the 100-day average.

Bullish Bets

Brent for October settlement added $1.38, or 2.9 percent, to close at $48.35 a barrel on the London-based ICE Futures Europe exchange, the highest settlement since July 12. The global benchmark crude closed at a $1.95 premium to WTI for October delivery.

"The market is richly rewarding this rhetoric, and as a result they’re probably going to keep at it," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "In practice, it’s hard to see it having any real impact. They would be freezing at record highs in terms of production."

Short Bets

Money managers bolstered their long position in WTI by 17,154 futures and options combined, the most since January, during the week ended Aug. 9, according to data from the Commodity Futures Trading Commission. Shorts, or bets on falling prices, increased 0.7 percent and were at a record for a second week. Net longs advanced 18 percent, the biggest jump since March.

Open interest for September $45 puts stood at 16,521 contracts. A put gives the holder the chance to sell if prices drop bellow $45. September options expire Wednesday and the futures contract expires Aug 22.
 
"Open interest in the $45 put now accounts for 10 percent of the trading volume in the month of September," Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania, said on Bloomberg Television. "There is a lot of give and take come this Wednesday and Monday’s expiration."  

For a story on hedge fund positioning on oil, click here.

Equities rose toward a record in New York as traders pushed back bets on higher interest rates. Commodities gained 1.4 percent as the dollar declined against most of its major peers, according to the Bloomberg Dollar Spot Index. A weaker dollar increases investor appetite for commodities.

"It’s really a question of whether the fundamental picture is going to improve and help us with a rally," said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. "We’ll find out if we’re going to see a continued rebalance in the market, a tightened supply and demand picture, in the coming weeks."

Oil-market news:

  • Russia doesn’t expect an output freeze coming out of OPEC talks next month, Interfax reports, citing a diplomatic source close to the talks.
  • The current cycle of low oil prices will end by late 2017, while a balancing of the market will take place next year, Russia’s Novak said in an interview with newspaper Asharq Al-Awsat.
  • Venezuela has begun coordinating efforts among OPEC members and producers outside the group including Russia, Venezuelan President Nicolas Maduro said on state television.
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