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Oil Prices Rise Again as Traders Close Out Bets




Aug 29, 2015

Oil prices soared Friday for the second day in a row, notching the biggest two-day percentage gain since 2009 as traders who had bet on lower prices scrambled to close out those wagers.

Oil prices had surged Thursday on positive U.S. economic data, news that some Nigerian exports would be halted and a report that Venezuela wanted an emergency meeting of the Organization of the Petroleum Exporting Countries to respond to low prices.

The market momentum continued Friday in the anticipation that monthly U.S. government data due for release Monday would show a continued decline in domestic crude production.

Analysts attributed most of the rally Friday to traders closing out bets made after the U.S. benchmark had slumped below $40 a barrel earlier this week for the first time since 2009.

On Friday, light, sweet crude for October delivery settled up $2.66, or 6.2%, to $45.22 a barrel on the New York Mercantile Exchange, the highest settlement since Aug. 4. Prices climbed 12% on the week, the biggest one-week percentage gain since February 2009.

Pumping jacks at the Kern River Oil Field in California. Oil prices rose Friday for a second day in a row. ENLARGE
Pumping jacks at the Kern River Oil Field in California. Oil prices rose Friday for a second day in a row. PHOTO: GETTY IMAGES
Brent, the global benchmark, rose $2.49, or 5.2%, to $50.05 a barrel on ICE Futures Europe. The contract rose 10% this week.

Both benchmarks are still down about 4% on the month. A number of market watchers say prices could start falling again soon, because the global glut of oil that sent prices plunging last year is likely to persist at least through the end of 2015. Production remains near multiyear highs in the U.S., Saudi Arabia and elsewhere.

The number of rigs drilling for oil in the U.S. rose by one last week, marking the sixth straight week of gains, oil-field-services company Baker Hughes Inc. said Friday.

“Have things materially changed, fundamentally? Probably not,” said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. “At the end of the day, we still have a big overhang of inventory.”

If prices continue rising, Mr. Saucer said, “I think you will see sellers re-emerge in the market.”

Mark Waggoner, president of brokerage Excel Futures, said he had bet on lower prices when the U.S. benchmark was trading around $61 a barrel and had closed out that position earlier this month, when prices fell below $42 a barrel. Mr. Waggoner said he plans to place a new bet on lower prices if the rally extends above $48.50 a barrel.

“There is no reason that oil isn’t going to go down from here,” Mr. Waggoner said, noting that OPEC is producing at high levels and refineries will buy less crude in the coming months as they perform seasonal maintenance.

Some market watchers are hoping for bullish signals from monthly U.S. production data due Monday afternoon, which will be the first to include output figures for June.

“We’re hearing somewhere around 200,000 barrels a day of production decline,” said Elaine Levin, president of energy brokerage Powerhouse. “We have had people coming in and buying.”

The Energy Information Administration has begun surveying companies directly about their output, rather than relying on state agencies, and the report due Monday will be the first to incorporate data from the new surveying method, according to a spokesman.

Gasoline futures settled up 6.5 cents, or 4.5%, at $1.5218 a gallon. Futures fell 1.5% on the week.

Diesel futures rose 8.04 cents, or 5.4%, to $1.5764 a gallon, posting a 7.8% weekly gain.

Some companies that buy fuel are eager to lock in prices, said Bryen Deutsch, commodity portfolio manager at Institutional Advisory Services Group Inc.

“A lot of major diesel users stepped up their purchases this week,” Mr. Deutsch said. “The economy is good, demand is there.”

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