Oil falls, still eyes weekly gain after prior day’s leap
New York (Aug 28) Oil futures pulled back Friday, yet remained on track for a sizable weekly advance after scoring their biggest one-day gain in more than five years in the prior session.
On the New York Mercantile Exchange, crude futures for October delivery CLV5, -0.19% declined by 28 cents, or 0.7%, to $42.28 a barrel in the Globex electronic session. October Brent crude LCOV5, -0.38% on London’s ICE Futures exchange shed 37 cents, or 0.8%, to $47.19 a barrel. Nymex crude is on pace for a weekly climb of 4.5%, while Brent is up 3.8%.
On Thursday, the prices surged 10.3%, the largest one day percentage gain since March 2009 for Nymex crude. It was the biggest rise since December 2008 for Brent crude.
“In terms of percentage, 10% is indeed a spectacular increase for both WTI and Brent. However, in dollar terms, this increase amounted to only $4,” analyst Daniel Ang at Phillip Futures said.
He argued that most of the price rally came from short-covering and bargain-hunting as oil market bears are covering their shorts and bulls are taking on long positions. The rally should also act as a buffer to stop oil from reaching new lows, and while price supports of $38 for WTI and $42 for Brent crude will likely be tested again, it won’t be this week, he said.
Oil markets were also supported after the Wall Street Journal reported that oil producer Venezuela has requested an emergency meeting of the Organization of the Petroleum Exporting Countries in coordination with Russia to stem the oil price rout. Investor sentiment also was shored up on Thursday by upbeat U.S. economic data and a stock-market rally.
‘In terms of percentage, 10% is indeed a spectacular increase for both WTI and Brent. However, in dollar terms, this increase amounted to only $4,’ analyst Daniel Ang at Phillip Futures
Daniel Ang, Phillip Futures
Venezuela’s call for an OPEC meeting is nothing new and the inclusion of Russia further complicates negotiations for even holding the meeting, analyst Tim Evans at Citi Futures said.
What would be new is if Saudi Arabia or any of the other Middle East oil producers agree to a meeting, and any shift away from competing aggressively for market share or restraining oil output would help tip the global oil balance in a favorable direction, he said.
However, the likelihood of any OPEC action remains very low.
“A change in OPEC policy could help to change the dynamic, but we do not expect even a slight course change over the next three months,” Paul Horsnell, head of commodities research at Standard Chartered said.
In addition to oversupply, macroeconomic concerns remain the dominant theme in the oil market and market participants are still wary that oil prices could head lower if sentiment turns negative again.
Read: Jim Rogers: Don’t rule out a bull run in commodities
Nymex reformulated gasoline blendstock for September RBU5, -1.23% — the benchmark gasoline contract — fell by a penny, or 1%, to $1.44 a gallon.