Oil Flips Higher on Hopes for Easing Glut, Production Freeze
Oil rallied Thursday as Saudi Arabia's energy minister said the country would be prepared to take "any possible action" necessarily to stabilize the global crude-oil market.
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Khalid al-Falih's comments come at a time when oil prices hang well below the price many nations in the Organization of the Petroleum Exporting Countries need to balance their national budgets. A surge in production from both traditional oil giants like Saudi Arabia and Iraq, as well as places like the U.S. and Canada, has pressured the market and kept oil prices below $50 a barrel for much of the summer.
On Thursday, Mr. Falih made remarks that hinted that Saudi Arabia might be willing to revisit talks with OPEC on limiting production.
"If there is a need to take any action to help the market rebalance, then we would, of course in cooperation with OPEC and major non-OPEC exporters," Mr. Falih said.
Even as oil surged, many analysts remained skeptical that Saudi Arabia would follow through with its words. The country -- the world's largest exporter of oil -- had walked away from a previous effort among OPEC to limit oil production in April. It has continued driving up output, with its production reaching a record 10.67 million barrels a day in July.
"It's really just a lot of noise," said Robbie Fraser, commodity analyst at Schneider Electric, adding that he believes short-covering by traders in response to the OPEC rumors was helping lift prices Thursday.
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AdvertisementU.S. crude oil for September delivery settled up $1.78, or 4.3%, to $43.49 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained $1.99, or 4.52%, to $46.04 a barrel.
Prices also gained earlier in the session after the International Energy Agency said its balances showed "essentially no oversupply during the second half of the year." The Paris-based agency, whose monthly oil market report is closely watched by the industry, said it predicts global production of crude oil will fall behind demand by almost one million barrels a day from July through September.
Despite the rally in oil on Thursday, many analysts still warn that prices could remain under pressure in coming months, as data show signs of slowing demand around the world. In its same report, the IEA cut its forecast for growth in global oil demand next year by 100,000 barrels a day to 1.2 million barrels, citing a dimmer economic outlook after the U.K.'s surprise vote to leave the European Union.
"You start to get a little nervous about demand in 2017, about what the impact of Brexit is going to be, about whether China and India keep these growth rates going," Mr. Fraser said.
The forecast for slower growth comes as the oil market is still oversupplied, with the IEA noting that "the massive overhang of [oil] stocks is also keeping a lid on prices."
In the U.S., domestic inventories of crude oil and petroleum products rose last week to a record high, government data showed Wednesday. U.S. stockpiles of crude oil and refined products rose by 2.5 million barrels in the week ended Aug. 5 to 1.39 billion barrels.
Meanwhile, OPEC members' July crude production rose by 46,000 barrels a day from June, to 33.11 million barrels.
"As it looks now the oversupply is likely to linger well into 2017," said Dominick Chirichella, analyst at the Energy Management Institute.
Gasoline futures gained 6.0 cents, or 4.6%, to $1.3617 a gallon. Diesel futures climbed 6.7 cents, or 5.1%, to $1.3852 a gallon.