Crude oil prices and related exchange traded funds climbed Thursday after the Saudi oil minister hinted at possible action in light of another dip in prices and the International Energy Agency forecasted supply to fall behind demand.
On Thursday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, rose 4.7% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, gained 4.9%.
Meanwhile, WTI crude oil futures were 4.3% higher to $43.5 per barrel while Brent crude was up 4.5% to $46.0 per barrel.
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Oil prices were rallying after Saudi Energy Minister Kahlid al-Falih said the Organization of Petroleum Exporting Countries and non-members would discuss the current low oil climate, along with any action that may be required to stabilize prices during the informal meeting on September 26 to 28, adding to speculation that the oil producers could come to some consensus to bolster prices, reports Devika Krishna Kumar for Reuters.
[related_stories]However, some market participants remained skeptical as the last Doha meeting in April fell through after Saudi Arabia backed out, citing Iran’s refusal to join the proposed production freeze, which sent prices reeling.
Further supporting oil gains on Thursday, the International Energy Agency projected that from July through September, global production of crude oil will fall behind demand by almost 1 million barrels per day, reports Summer Said for Wall Street.
“Our balances show essentially no oversupply during the second half of the year,” the IEA’s monthly report said Thursday.
Contributing to the diminishing supply glut, the markets experienced deep output cuts from producers outside of OPEC and a healthy global demand for crude oil, according to the IEA.
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Moreover, the bullish take on oil has caught a lot of bearish traders by surprise, triggering short covering that further supported gains.
“The markets clearly are deriving support from both the IEA report and statements from the Saudi oil minister,” Andrew Lebow, senior partner at Commodity Research Group, told Reuters. “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.”
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United States Oil Fund