Crude bounces back on OPEC action
Oil stormed back into bull market territory, as investors who had abandoned crude just a month ago were lured back by an OPEC-led campaign to bring runaway supplies in check.
West Texas Intermediate crude closed at $52.36 a barrel, completing a 23 percent recovery since hitting an 18-month low on Christmas Eve. Brent, the global benchmark, finished the day up 22 percent since bottoming out.
Crude ended 2018 in free fall but has reversed course on signs that Saudi Arabia, Russia and other major exporters will follow through on last month’s pledge to slash production — Saudi Energy Minister Khalid Al-Falih said the plan was on track Wednesday. Progress in ending the U.S.-China trade war has turned the economic outlook brighter, adding to oil’s momentum.
“Sentiment went from completely negative a couple of weeks ago to very positive right now,” said Matt Sallee, a portfolio manager who helps oversee $16 billion in energy assets for Kansas-based Tortoise. “Everyone’s just focused on the Saudis, and they seem quite determined.”
The growing optimism allowed traders to overlook a report of a steep inventory jump for U.S. gasoline and diesel.
The Organization of Petroleum Exporting Countries and its partners vowed last month to curb output by 1.2 million barrels a day, countering a boom in U.S. production. In Riyadh on Wednesday, Al-Falih said that still looks “more than sufficient” to stabilize prices, although he didn’t rule out further action if necessary.
“Responsible countries like the kingdom and other like-minded countries will continue to steward the market,” Al-Falih said.
Adding to support for oil, the value of the U.S. dollar tumbled after a Federal Reserve official said the central bank isn’t locked into a particular direction for interest rates. The decline made commodities priced in the U.S. currency more affordable.
WTI for February delivery finished the day up $2.58, or 5.2 percent, to reach $52.36 on the New York Mercantile Exchange. Brent for March settlement gained 4.6 percent to $61.44 and traded at an $8.75 premium to WTI for the same month.
“There is further upside to come in prices, as we see more evidence coming through that members of OPEC+ are complying with their new production cut,” said Warren Patterson, senior commodities strategist at ING Bank NV. “We see the market largely balanced over the first half of 2019.”
The U.S. Energy Information Administration earlier said domestic gasoline stockpiles surged by 8.07 million barrels while stores of distillates, the class of fuels that includes diesel fuel and home heating oil, were up 10.6 million. Crude oil inventories fell, but by less than analysts had expected.