Oil Futures Close Higher

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply higher Thursday afternoon, rallying on a bullish comment from Saudi Arabia's oil minister about possible coordinated action by leading oil producers to stabilize oil prices that triggered short-covering.

The futures complex had traded mixed earlier in the session on data including a bearish report from the International Energy Agency that revised down the agency's global demand forecast for 2017. However, oil futures made an upward push after traders revised their views about the IEA report and focused on parts of the monthly outlook that said global crude markets would tighten in the second half of 2016.

Later, the oil futures advance became a full-blown rally after Saudi Energy Minister Khalid al-Falih said the Organization of Petroleum Exporting Countries and non-OPEC members would discuss the market conditions and any action that may be required to stabilize prices during an informal meeting on Sept. 26-28 in Algeria.

Those comments, which gave credence to Monday's comments by OPEC President Mohammad bin Saleh al-Sada who said the 14 OPEC nations plan to have an informal meeting on the sidelines of the International Energy Forum's conference in Algeria, triggered fund buying and some short covering, giving a boost to prices, said Tom Bentz, head of energy derivatives at ABN AMRO.

Analysts had been skeptical on Monday when Saleh al-Sada first issued a news release about the plan for informal talks by OPEC members, but the Saudi comment changed views today and the market now thinks OPEC is serious about keeping prices from falling further. That's partly because the Saudis have clout within OPEC, and many analysts said that a push earlier this year for OPEC to freeze production failed because of the Saudis.

At a meeting to sign on the deal by OPEC and Russia to freeze output earlier this year, the Saudis insisted that Iran must also participate in the deal and cut production. Iran refused to do so, a position it took well ahead of the discussions, saying it would ramp up production after winning sanctions relief in January. A backing of any deal to stabilize the market by cutting or freezing production would succeed if the Saudis want it to, Bentz said.

"This is the first time the Saudis have said anything about stabilizing the market, so it's supportive to oil prices," Bentz added.

In addition, market intelligence firm Genscape reported a crude draw of about 271,000 bbl for the week-ended Aug. 9 at the Cushing, Oklahoma, delivery hub for NYMEX-traded West Texas Intermediate crude futures.

A federal report showing an active hurricane season this year and reports of refinery outages also added to the futures rally, said analysts.

At settlement, NYMEX September ULSD futures jumped 6.65cts to $1.3849 gallon, rebounding from a four-day low of $1.3060 to a better than two-week high of $1.3934. NYMEX September RBOB futures spiked 6.03cts to $1.3617 gallon at settlement, reversing off a nearly two-week spot low of $1.2817.

NYMEX September WTI crude futures settled up $1.78 at $43.49 bbl after bouncing off a $41.10 four-day low to a better than two-week high of $43.86.

October Brent on the IntercontinentalExchange jumped $1.99 to a $46.04 bbl settlement, reversing off a $43.46 one-week low and rallying to a $46.30 better than two-week spot high.

The IEA's bearish Oil Market Report for August said the Paris-based agency continues to expect a 1.4 million bpd annual growth rate in world oil demand this year to 96.1 million bpd, but reduced its estimate for global oil consumption in 2017 by 100,000 bpd for a year-on-year increase of 1.2 million bpd.

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