NYMEX Oil Futures Rally

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply higher Friday afternoon and West Texas Intermediate snapped a six-day losing streak and jumped about 12% on short-covering spurred by bullish comments by United Arab Emirates that raised the prospect of oil production cuts. Despite Friday's price spike, WTI futures are still down for the week amid an ongoing glut in global crude supplies.

A rally on Wall Street led by banking stocks also boosted oil prices, with the blue-chip Dow Jones Industrial Average gaining over 300 points after data showing strong consumer spending in January countered recent talk of recession. The DJIA is a proxy for investor confidence.

"The UAE comment was a big part of the reason for the oil rally because it gives the recent chatter about potential OPEC cut credibility, but I also think the stock market rally after Jamie Dimon came back to buy shares gave a psychological boost to the broader market, so I think oil may have reached a bottom," said analyst Phil Flynn at Price Futures.

Mohammed al-Mazrouei, UAE's energy minister, said late Thursday that the Organization of the Petroleum Exporting Countries was willing to cooperate with non-OPEC producers on possible production cuts. That was followed a proposal by Venezuela, which has previously lobbied for less supply, that OPEC and non-OPEC producers should at least freeze output at the current levels.

Some of the rally was attributed to oversold market conditions as well as the fact that traders often close out positions -- sometimes by buying back futures contracts -- ahead of a long weekend to avoid being caught short if something unexpected develops. Monday is a holiday in the United States, so markets will be closed.

At settlement, NYMEX March WTI crude futures surged $3.23, or 12.3%, to $29.44 per barrel (bbl), having bounced off Thursday's $26.05 12-1/2 year low on the spot continuation chart to a three-day high of $29.66. For the week, the WTI contract was down $1.45 or 4.7%.

April Brent crude oil futures on the IntercontinentalExchange advanced $3.30 or 10.5% to a $33.36 bbl settlement, moving off a three-day high of $33.44 and posting a weekly loss of 70 cents, or 2.0%.

In products trade, the NYMEX March ULSD futures contract spiked 9.02 cents or 9.2% to $1.0693 gallon, off a one-week high of $1.0739 and gaining 1.0 cent for the week. The March RBOB futures contract rocketed 10.15 cents or 10.8% to $1.0432 gallon, off a one-week high of $1.0462 while up 5.0 cents or 5.0% for the week.

On Wall Street, U.S. stock indices settled higher, with the dollar also rising after the Commerce Department said retail sales rose 0.2% in January versus an expected 0.1% increase. If volatile products such as food and energy are excluded, retail sales rose 0.6% after an unrevised 0.3% decline in December.

On OPEC, there have been similar proposals in the past year to cut output but none have come to fruition because Saudi Arabia has been opposed to output cuts, preferring instead to maintain its market share amid steep supply levels and discounted prices. UAE's comment is key because it signals Saudi Arabia could also change its view and support such a move. UAE is an ally of Saudi Arabia, analysts said.

OPEC is pumping at record level and its surplus crude production capacity, which averaged 1.6 million bpd in 2015, is projected to be 2.0 million bpd in 2016 and 1.9 million bpd in 2017, according to the U.S. Energy Information Administration.

George Orwel can be reached at george.orwel@dtn.com