Oil prices jump on talk OPEC is ready to deal, but traders are wary of ‘jawboning’

NEW YORK – Global oil prices surged around 12 per cent on Friday after a report once more suggested OPEC might finally agree to cut production to lessen the planet glut, while a bounce in stock markets fed appetite for risk.

Despite the strong daily gain, oil prices were poised to end a few days down as much as 5 per cent.

The United Arab Emirates’ energy minister said the business of the Petroleum Exporting Countries was willing to cooperate with an output cut, the Wall Street Journal reported on Thursday after crude futures settled in U.S. trade.

Many traders were skeptical at first concerning the report, noting that Venezuela and Russia had tried in vain earlier within the week to stir Saudi Arabia and other major producers into receiving output cuts.

But after a 75 per cent price slump since mid-2014 that has taken crude prices to more than 12-year lows, many were inclined to think that the rebound was due sooner or later if production tightens or demand picks up.

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“We expect declining U.S. oil production, in particular, to drive the oil price look out onto US$50 per barrel after the year,” Frankfurt-based Commerzbank said inside a note.

U.S. crude contracts within the next five years were trading under US$50 a barrel on Friday, rising above that level only from November 2021 onwards.

U.S. crude’s front-month settled up US$3.23, or 12.3 per cent, at US$29.44 per barrel, reaching a session high of US$29.66. It hit a 12-year low of US$26.05 the day before. For the week, it lost 4.7 per cent.

Brent’s front-month closed up US$3.30 at US$33.36 a barrel, having slid below US$30 on Thursday. Weekly losses were pared to two per cent.

Prices extended gains after data showed an eighth straight weekly drop in the number of U.S. rigs drilling for oil. Oil also had a boost in the rally in global equity markets.

Some cited Monday’s Presidents Day holiday in the United States, saying fewer players wanted a brief position in oil in front of the longer saturday and sunday for the New York crude market.

But others, like Tyche Capital Advisors’ Tariq Zahir, were looking to profit again from bearish bets when the rally peaks. “It gives me great chance to released new shorts in crude spreads,” he said.

Many expected wilder price swings in coming weeks.

“It’s not really a one-way price movement anymore,” said ABN AMRO’s senior energy economist Hans van Cleef. “We will discover a duration of high volatility.”

? Thomson Reuters 2016