THE WALL STREE JOURNAL

Oil Surges on Speculation of Production Cuts

Traders focused on potential for talks between Russia,
OPEC
By Nicole Friedman / Updated Jan. 27, 2016 10:08 p.m. ET

 

Oil prices gained Wednesday amid speculation about output cuts from the world’s leading exporters.


A weaker dollar also boosted prices after the Federal Reserve signaled it was concerned about global economic
turbulence in its Tuesday afternoon statement. A weaker U.S. currency makes dollar-priced oil less expensive for
foreign buyers.


Concerns about a growing oversupply of crude oil capped the price gains, as U.S. inventory data showed domestic
crude inventories at a weekly record high.


Oil prices have plunged over the past 19 months as persistently high production around the world overwhelmed
demand, pushing more crude oil and refined products into storage.


Light, sweet crude for March delivery settled up 85 cents, or 2.7%, to $32.30 a barrel on the New York Mercantile
Exchange. Brent, the global benchmark, gained $1.30, or 4.1%, to $33.10 a barrel on ICE Futures Europe.


Traders focused on the potential for talks between Russia and the Organization of the Petroleum Exporting Countries
about cutting oil production.


After a meeting between government officials and oil-company chiefs in Moscow on Wednesday, the head of
Russia’s state pipeline operator said Saudi Arabia had suggested a discussion, along with other OPEC members,
over potential production cuts, state news agencies reported.The comments come a day after Iraq’s oil minister said
he sees signs that Saudi Arabia and Russia are now more “flexible” on supply cuts.


However, Russian officials have long maintained that they have no intention of cutting production, in part citing the
technical difficulty of halting then restarting production in the predominantly cold producing regions.


A Kremlin spokesman said earlier Wednesday that officials were frequently in contact with various other countries
about the oil market, but that it was too early to talk about any coordinated actions, state news agencies reported.


Some investors have gotten more hopeful that large producing nations would collaborate to cut production in recent
weeks as oil prices have fallen to 12-year lows.


“With oil at these levels, it’s just a matter of time before OPEC blinks,” said Peter Cardillo, chief market economist at
First Standard Financial Co.


But many analysts maintain that OPEC is unlikely to cut output, because higher prices would allow U.S. shale-oil
producers to drill more wells, keeping the market oversupplied.


U.S. crude-oil production fell in the second half of 2015 but more slowly than many expected, as producers cut costs
and increased efficiency. The U.S. Energy Information Administration estimated Wednesday that U.S. production fell
by 14,000 barrels a day last week, holding at 9.2 million barrels a day.


“Looks like U.S. shale oil producers remain resilient to the low oil prices and keep producing,” said Michael Poulsen,
oil analyst at Global Risk Management.


The EIA said Wednesday that U.S. crude-oil inventories grew by 8.4 million barrels last week to 494.9 million barrels,
the highest level on record in weekly data going back to 1982. In monthly data, which don’t line up exactly with
weekly data, inventories haven’t been this high since 1930.


Some investors expect U.S. production declines to accelerate this year as companies cut costs further. Large U.S.-
based oil producers Hess Corp. HES 8.66 % , Noble Energy Inc. NBL 2.64 % and Continental Resources Inc. CLR
6.33 % all announced spending cuts this week.


International producers are also getting squeezed by low oil prices. Spanish oil major Repsol SA REPYY -1.62 % said
Wednesday it would set aside more than $3 billion to compensate for the drop in oil prices.


Diesel futures surged Wednesday after the EIA reported that stockpiles of distillates, including diesel fuel and heating
oil, fell more than expected last week. Diesel demand has been weak from a slowing industrial sector and tepid
heating demand during a warm winter.


Diesel futures settled up 5.75 cents, or 5.9%, at $1.0252 a gallon.


Gasoline futures fell 0.15 cent, or 0.1%, to $1.0457 a gallon.


—James Marson, Georgi Kantchev, and Timothy Puko contributed to this article.


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.