Oil jumps 5% overnight on Saudi energy minister's comments, tighter market forecast

Saudi Energy Minister Khalid al-Falih attends a news conference announcing the kingdom's National Transformation Plan, in Jeddah, Saudi Arabia on June 7.
Saudi Energy Minister Khalid al-Falih attends a news conference announcing the kingdom's National Transformation Plan, in Jeddah, Saudi Arabia on June 7. PHOTO: REUTERS

NEW YORK (REUTERS) - Oil prices rose about 5 per cent on Thursday (Aug 11) after comments from the Saudi oil minister about possible action to stabilize prices triggered a round of buying and the International Energy Agency forecast crude markets would tighten in the second half of 2016.

Saudi Energy Minister Khalid al-Falih said Opec members and nonmembers would discuss the market situation, including any action that may be required to stabilize prices, during an informal meeting on Sept 26-28 in Algeria.

The comments by the minister of the world's top oil exporter triggered fund buying and some short covering, giving a boost to prices, traders and brokers said.

Both benchmarks soared more than 5 per cent and Brent futures were up US$1.89 at US$45.94 a barrel by 1643 GMT and US crude rose US$1.76 to US$43.47.

Many traders remain skeptical of the outcome of the meeting, expecting a repeat of the Doha meeting in April when talks fell through after Saudi Arabia backed out, citing Iran's refusal to join in a so-called production freeze.

But CNBC in a report on Thursday said Saudi Arabia now has a new reason to cooperate with Opec - the economic transformation plan announced by Saudi Deputy Crown Prince Mohammed bin Salman this spring.

At the heart of that plan is the IPO of state-owned Saudi Aramco in 2017 or 2018, which is key to a move to diversify the economy and turn its Public Investment Fund into a US$2 trillion sovereign wealth fund, said CNBC.

Even though the IPO could be well into the future, it is in Saudi Arabia's interest to have a more stable oil price with the high volumes it is producing, analysts told the business channel.

In more bullish news, the IEA, which advises large developed economies on energy policy, forecast a healthy draw in global oil stocks in the next few months that would help ease a glut that has persisted since 2014 on the back of rising Opec and non-Opec supply.

"Oil's drop ... has put the 'glut' back into the headlines even though our balances show essentially no oversupply during the second half of the year," the Paris-based IEA said in its monthly report.

"The markets clearly are deriving support from both the IEA report and statements from the Saudi oil minister," said Andrew Lebow, senior partner at Commodity Research Group in Darien, Connecticut.

"In a crude market that has seen a combined increase of 200,000 gross short speculative positions over just the past six weeks, any talk of a potential coordinated effort from producers, no matter how unlikely the prospect, will lead to short covering."

Market intelligence firm Genscape also reported a draw of about 271,000 barrels at the Cushing, Oklahoma delivery hub for WTI futures in the week to Aug 9, traders said.

Analysts at brokerage Bernstein said in a note they expect high inventories, especially of refined fuel, to spur further refinery run cuts in the next few months.

"This expected diminishing product inventory overhang will lead to a sustained tightening of oil market fundamentals and oil prices should be well above current levels," they said.