Crude oil rose after Iran said it supported a proposal by Saudi Arabia and Russia that would freeze production at near-record levels, without saying whether it would curb its own output.
Futures surged 5.6 percent in New York. Iran’s Oil Minister Bijan Namdar Zanganeh met with counterparts from Qatar, Venezuela and Iraq, the second-biggest Opec producer, following the output agreement in Doha Tuesday.
Iran supports the proposal, Zanganeh said, according to the Shana news agency. He didn’t mention if the nation would deviate from plans to restore exports after the lifting of sanctions last month.
"The fact that they had a meeting and it ended cordially is reason enough for a gain," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "These countries are supposed to be at each other’s throats, so it’s something."
Oil has dropped 23 percent since the Organization of Petroleum Exporting Countries (Opec) effectively abandoned output targets at a Dec. 4 meeting.
Iran, the second-biggest Opec producer before sanctions were intensified in 2012, is seeking to boost output by 1 million barrels a day and regain market share. The nation has loaded its first cargo to Europe.
West Texas Intermediate oil for March delivery rose $1.62 to settle at $30.66 a barrel on the New York Mercantile Exchange. It’s the highest close since Feb. 5. Prices sank to a 12-year low this month, extending a 30 percent drop last year. Total volume traded was 51 percent above the 100-day average at 4:40 p.m.
Futures extended gains after the settlement when the American Petroleum Institute was said to report U.S. crude supplies fell 3.26 million barrels last week. WTI traded at $31.23 at 4:40 p.m.
Brent for April settlement rose $2.32, or 7.2 percent, to $34.50 a barrel on the London-based ICE Futures Europe exchange. The European benchmark was at a $1.45 premium to WTI for April delivery.
The CBOE Crude Oil Volatility Index, which measures expectations of price swings, climbed to the highest level in seven years Tuesday. The 30-day WTI historical volatility reached the highest since 2009 Wednesday, according to Bloomberg data.
"Volatility is through the roof," said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. "We’re in the midst of a technical rebound. The market is oversold and using these headlines hinting at Opec getting its act together as an excuse."
The rise in oil prices Wednesday probably won’t preclude a drop to as low as $15 a barrel, John Brynjolfsson, founder of money manager Armored Wolf said Wednesday in an interview on Bloomberg Television and Radio.
"I see today’s rise as a big head fake," Brynjolfsson said. "We still see a lot of blood in the streets, and there’s going to be more of it."
Iran won’t “forgo its share of the market,” Zanganeh said Tuesday, according to Shana. The nation pumped 2.86 million barrels a day in January, making it the fifth-biggest producer in Opec, according to data compiled by Bloomberg.
"The Iranians sacrificed a great deal to get the sanctions lifted and are very much focused on bringing production online," said Chris Lafakis, a West Chester, Pennsylvania-based senior economist at Moody’s Analytics. "They have said that they aim to increase output by 1 million barrels a day, but that’s easier said than done."
Even if producers reach agreement, the deal would have little impact on production and would “leave the global surplus in place” in the first half of 2016, Goldman Sachs Group Inc. analysts Damien Courvalin and Jeff Currie said in a report. Iran’s determination to expand output suggests its participation is unlikely, they said.
The preliminary deal to fix production at January levels is the “beginning of a process” that may require “other steps to stabilize and improve the market,” said Saudi Oil Minister Ali Al-Naimi.
"I don’t see this changing market dynamics much," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $128 billion of assets. "There’s no benefit for Iran or Iraq in restraining production."
Venezuela, which along with Qatar also agreed to join the freeze, has lobbied exporters including Russia, Iran and Saudi Arabia to cooperate to balance supply and demand, and to revive prices. The Doha accord is conditional on other nations agreeing to participate, Russia’s Energy Ministry said.
Saudi Arabia pumped 10.2 million barrels a day of crude in January, according to data compiled by Bloomberg. Russian output of crude and a light oil called condensate rose to 10.9 million barrels a day last month, a post-Soviet high, according to a unit of the country’s Energy Ministry.
"The next few months are going to be very tough," said Hamza Khan, head of commodity strategy at ING Bank NV in Amsterdam.
U.S. crude supplies probably increased 3.5 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Thursday. Gasoline stockpiles climbed while inventories of distillate fuel declined, according to the estimates.
Diesel futures for March delivery rose 5.9 percent to $1.0879 a gallon, the highest settlement since Jan. 5. March gasoline climbed 3.4 percent to $1.0034.
Source: Gulf News