Oil Prices Post Largest Gain in Nearly Two Months
Prices rise on new option to send U.S. oil to Mexico and smaller-than-expected stockpile addition
The benchmark U.S. oil price soared to its largest gain in two months, as traders rushed to close bearish bets following news that the U.S. permitted oil exports to Mexico.
Official data showing declining fuel stockpiles fueled further gains.
Wednesday’s surge resembled other spikes this year that fizzled, brokers and analysts said. Neither the Mexico news nor the stockpile data indicates a global glut of crude that spurred last year’s price collapse is easing, they said.
Those factors are far outweighed by production increases in other countries that are likely to keep prices low until next year, said Will Riley, co-portfolio manager at Guinness Atkinson Asset Management Inc., which oversees about $300 million in energy-equity investments.
“OPEC is the reason everything is oversupplied,” Mr. Riley said, citing growing production from the Organization of the Petroleum Exporting Countries. “What you see [Wednesday] is usual daily volatility.”
Crude oil for December delivery jumped $2.74, or 6.3%, to $45.94 a barrel on the New York Mercantile Exchange, the largest one-day dollar and percentage gains since Aug. 31.
Brent, the global benchmark, rose $2.24, or 4.8%, to $49.05 a barrel on ICE Futures Europe.
Throughout 2015, traders who buy and sell crude based on price-chart patterns have stoked volatility in the oil market by pulling back after hitting fresh lows. The move to close out bearish bets, or those wagering prices will fall, at times has pushed prices higher. But once those wagers are covered, oil prices have resumed falling.
On Wednesday, the day after Nymex crude hit a two-month low, Mexico’s state-owned Petróleos Mexicanos, known as Pemex, said it had received permission from the U.S. to import as much as 75,000 barrels a day of high-quality “light” crude starting this month.
While the agreement represents a loosening of the 40-year-old ban on oil exports from the U.S., it doesn’t reduce the amount of crude available because it is a swap. For every barrel of oil that is shipped to Mexico, Pemex will send a barrel of a different crude-oil blend back to the U.S.
The Wall Street Journal reported the arrangement in August. Wednesday’s news of final U.S. government approval spooked bearish investors into closing out bets, said Ric Navy, senior vice president for energy futures at brokerage R.J. O’Brien & Associates. “It’s a nervous-trigger market,” he said.
Oil futures continued to rally after the Energy Information Administration said crude supplies rose slightly less than expected and inventory declines of gasoline and diesel exceeded expectations last week. Gasoline stockpiles fell by 1.1 million barrels, while analysts expected a 900,000-barrel decline. Diesel supplies fell by three million barrels; a 1.9 million barrel drop was expected.
Stockpiles of crude at the trading hub of Cushing, Okla., fell 800,000 barrels last week, EIA said. Refineries boosted operations to process crude oil into products, with the nationwide utilization rate rising to 87.6% in the week ended Oct. 23, from 86.4% the prior week.
“The main story was that refinery-maintenance season appears to be waning,” Société Générale analyst Michael Wittner said in a note.
The quick turnaround from refineries is a sign that oil demand is growing fast enough to eventually absorb the global glut of crude, said Jonathan Berland, senior managing director at Gresham Investment Management LLC, which oversees $9 billion. It has about $2.5 billion on crude and oil-products markets, largely bets that futures will rise in coming months as far out as 2017.
Crude futures for delivery as far out as 2024 are trading below $60 a barrel, which isn’t high enough to sustain a pace of production that is fast enough to keep up with demand, he said.
“It doesn’t mean it is a straight line up, but this level of price is not sustainable relative to global demand,” Mr. Berland said. “And global demand is outstanding.”
Gasoline futures rose 4.9% to $1.3501 a gallon. Diesel futures rose 4.2% to $1.4839 a gallon.
Still, U.S. crude-oil inventories remain near levels not seen for this time of year in at least the past 80 years, according to the EIA. The rise in U.S. stockpiles adds to the global oversupply that has battered prices since last year. Reluctance by major oil producers such as Russia and OPEC to trim output to defend their market share has kept prices at levels last seen during the financial crisis..
“The fact that the immediate picture is bearish was confirmed by the latest” inventory data, said Tamas Varga of PVM brokerage. “Global oil supply is abundant, and oil stocks are plentiful.”
Source: WSJ – Oil Prices Post Largest Gain in Nearly Two Months
