Oil Jumps Most in Seven Months as OPEC Members Seen Pushing Deal

  • Qatar, Algeria, Venezuela said to lead effort to secure cuts
  • Bets on lower WTI crude prices climb most since May 2012: CFTC

BP's Dudley Says Oil Supply and Demand Generally Balanced

Oil surged the most in seven months as OPEC members were said to be making a final diplomatic push toward securing a deal to cut output.

West Texas Intermediate oil rose 5.8 percent on Tuesday, rebounding from an eight-week low. Qatar, Algeria and Venezuela are leading the effort to finalize a deal, a delegate familiar with the talks said. Speculators raised short positions, or bets on lower prices, by the most in more than four years in the week ended Nov. 8, Commodity Futures Trading Commission data show. U.S. crude supplies probably rose last week, according to a Bloomberg survey before a government report Wednesday. Industry data showed a gain Tuesday.

"We’re looking at a combination of short covering and OPEC hopes," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $5.2 billion. "There are great hopes that OPEC will be able to come up with some sort of an agreement before the end of the month; it’s in their interest."  

Oil has retreated for most of the past four weeks amid skepticism about the ability of the Organization of Petroleum Exporting Countries to implement a deal at its Nov. 30 meeting. The group is seeking to trim output for the first time in eight years as Iran boosts production and Iraq seeks an exemption because of its war with Islamic militants. Prices will probably remain around current levels if OPEC fails to cut, according to BP Plc Chief Executive Officer Bob Dudley.

WTI for December delivery rose $2.49 to settle at $45.81 a barrel on the New York Mercantile Exchange. Prices dropped 9 cents to $43.32 on Monday, the lowest close since Sept. 19. Total volume traded was 41 percent above the 100-day average at 4:36 p.m.

Futures slipped from the settlement after the industry-funded American Petroleum Institute was said to report U.S. crude supplies grew by 3.65 million barrels last week. WTI traded at $45.64 at 4:37 p.m.

Narrowing Contango

Contango, the structure in which prices for delivery today are lower than those in future months, is narrowing. A weakening may signal stronger near-term demand or tighter supply. The December WTI discount to futures for the next five months shrunk on Tuesday.

"The futures curve is tightening, a potential indication of improving supply-demand," said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC in New York. "While headlines swirl ahead of OPEC it is important to retrench on fundamentals."

Brent for January settlement increased $2.52, or 5.7 percent, to $46.95 a barrel on the London-based ICE Futures Europe exchange. The contract fell to $44.43 on Monday, the lowest close since Aug. 10. The global benchmark closed at a 56 cent premium to WTI for January delivery.

See also: Money managers raise bets on falling oil in run-up to Trump win

Oil market volatility, as measured by the Chicago Board Options Exchange Crude Oil Volatility Index, climbed to the highest since April on Monday as prices retreated.

Market Rebound

"It’s not a surprise that there would be a rebound after the big drop," said Kyle Cooper, director of research with IAF Advisors in Houston. "The size of the gain is surprising though, especially given the lack of news. It’s important to remember that we’re still down more than $6 from last month’s highs."

The S&P 500 Index edged higher with energy companies leading the gains. The S&P Oil & Gas Exploration and Production Select Industry index was up as much as 4.6 percent to the highest in more than a month.

Saudi Arabia, Iraq and Iran are still at odds over how to share output cuts, according to an OPEC delegate, who asked not to be identified because the discussions are private.

Iran’s Renaissance

Iran is considering a proposal to freeze oil production near the level the nation says it currently pumps -- almost 4 million barrels a day -- rather than OPEC’s estimate of about 3.7 million, the delegate said. OPEC pledged at a September meeting in Algiers to bring its total output down to a range of 32.5 million to 33 million barrels a day, which compares with output of 33.6 million last month.

Hedge-fund manager Pierre Andurand says OPEC is still likely to agree on an output freeze this month and prompt a sharp rally in prices, despite disputes among members. The supply glut is gone with no sign that production will grow next year, Andurand said in a note to investors obtained by Bloomberg News.

Oil-market news:

  • Oil supply and demand are “generally in balance,” BP CEO Dudley said in a Bloomberg Television interview in Riyadh on Tuesday.
  • U.S. crude supplies probably rose by 1 million barrels last week, according to the median estimate in a Bloomberg survey before an Energy Information Administration report on Wednesday.

— With assistance by Grant Smith

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