NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled sharply higher Monday afternoon on continued short covering after Russian Energy Minister Alexander Novak said he was consulting with the Organization of Petroleum Exporting Countries on a plan to stabilize oil prices.
"People are covering short positions because there's likely to be a deal between OPEC and non-OPEC," said analyst Phil Flynn at Price Futures Group.
Novak said Russia was amenable in working with OPEC and non-OPEC members to discuss possible action to stabilize the world oil market following last week's comments from Saudi Energy Minister Khalid al-Falih and OPEC President Mohammad bin Saleh al-Sada.
Al-Falih and Al-Sada last week said OPEC would hold an informal meeting to discuss freezing or cutting oil production alongside the International Energy Forum conference scheduled for Sept. 26-28 in Algeria. These were still merely comments, but they led speculators to increase their bets on oil, hoping the move would rebalance the market this year.
Russia, Saudi Arabia and the United States are the world's three largest oil producers. The West Texas Intermediate crude oil contract has rallied about 10.0% since the talk about OPEC action started on Aug. 8.
Flynn said the market was also supported by a report from Genscape showing an unexpected 350,000 bbl drop in crude oil stocks at Cushing, Oklahoma, which serves as the delivery point for NYMEX West Texas Intermediate futures, as well as a refinery outage in the flooded parts of the Mississippi Gulf Coast.
NYMEX September WTI crude futures settled up $1.25 at $45.74 bbl, and near a $45.87 3-1/2 week high on the spot continuation chart. October Brent on the IntercontinentalExchange jumped $1.38 to $48.35 bbl, near a $48.54 one-month spot high.
In products trade, NYMEX September ULSD futures rallied 4.13cts to $1.4499 gallon at settlement, off a $1.4559 one-month spot high. NYMEX September RBOB futures climbed 2.98cts to $1.4007 gallon at settlement, near a one-month spot high of $1.4040.
Despite the oil rally, some analysts remain skeptical OPEC would agree to reduce output, or even if they do reach an agreement, that members would stick to the deal considering their checkered history.
OPEC has a regularly scheduled biannual summit in Vienna on Nov. 30, so any potential deal between the group and Russia to act on output would have to come at or before then, said analysts.
Analysts also cited several other features in underpinning the oil futures rally, including expectations for a U.S. crude stock draw for the week-ended Aug. 12, expiration of September WTI crude contract on Wednesday (8/17), a softer U.S. dollar and technical support.
"It looks we could get past Brexit retracement and get back to pre-Brexit highs if the OPEC deal gets done," Flynn said.
George Orwel can be reached at email@example.com
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