Oil prices closed 1.5 per cent higher on Friday, rebounding from five-month lows, following positive US jobs data and assurances by Saudi Arabia that Russia is ready to join OPEC in extending supply cuts to reduce a persistent glut.
The market, however, remained in technically oversold territory with futures trading down as much as 19 per cent from highs in mid April, prompting some speculators to exit their long positions.
Saudi Arabia’s OPEC governor Adeeb Al-Aama said OPEC and non-OPEC nations were close to agreeing to extend production cuts. Photo: Andrey Rudakov
Brent futures gained 72 cents, or 1.5 per cent, to settle at $US49.10 a barrel, while US West Texas Intermediate crude climbed 70 cents, or 1.5 per cent, to close at $US46.22 per barrel.
After falling almost 5 per cent on Thursday, both contracts continued to collapse overnight with WTI falling to $US43.76, its lowest since November 15, and Brent down to $US46.64, its lowest since November 30 when the Organisation of the Petroleum Exporting Countries (OPEC) agreed to cut production during the first half of 2017.
Both benchmarks pared losses after Saudi Arabia’s OPEC governor Adeeb Al-Aama told Reuters that OPEC and non-OPEC nations were close to agreeing to extend a deal to curb production by 1.8 million barrels per day (bpd) for six months from January 1.
“Based on today’s data, there’s a growing conviction that a six-month extension may be needed to rebalance the market, but the length of the extension is not firm yet,” the Saudi official said.
OPEC sources said on Thursday that OPEC is likely to extend cuts when it meets on May 25 but that a deeper cut is unlikely.
In the United States, meanwhile, job growth rebounded sharply in April and the unemployment rate dropped to 4.4 per cent, near a 10-year low, according to government data.
“The jobs report is extremely positive for the US economy … and should help boost oil demand,” said Mark Watkins, regional investment manager for US Bank’s private client group in Park City, Utah.
Despite gains on Friday, both benchmarks declined for a third week in a row – Brent by about 5 per cent and WTI by 6 per cent – in their longest losing streak since November.
“The energy complex is slowly succumbing to an opinion that this year’s OPEC production cuts have been ineffective,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.
“We feel that the (OPEC) cartel has come to a fork in the road in which the current agreement will be abandoned or steps will need to be taken to double down on current efforts by increasing production curtailments,” Ritterbusch said.
Brent traded volumes on Thursday reached a record high of nearly 542,000 contracts, suggesting that hedge funds had accelerated reductions to their long positions.
Pierre Andurand, who runs one of the biggest hedge funds specialising in oil, liquidated his fund’s last long positions in oil last week and is running a very reduced risk at the moment, a market source familiar with the development said.
“It is now-or-never for oil bulls,” said US commodity analysis firm The Schork Report. “They either put up a defence here or risk further emboldening the bears for a run at the $US40 threshold (for WTI).”