Oil prices rally more than 12 per­cent

The Pak Banker - - MARKETS/SPORTS -

Oil prices ral­lied more than 12 per­cent Fri­day on re­newed prospects for an out­put cut among the world's oil pro­duc­ers, but an­a­lysts and mar­ket watch­ers told CNBC that traders shouldn't hold out hope.

Crude prices spiked Thurs­day af­ter­noon af­ter UAE En­ergy Min­is­ter Suhail bin Mo­hammed al-Mazrouei said con­sen­sus was form­ing within OPEC that it was time to dis­cuss cuts with non­mem­bers. He also said cur­rent low prices had forced some mem­bers to cap pro­duc­tion. Michael Co­hen, Bar­clays head of en­ergy com­modi­ties re­search, said he was not moved by the lat­est news, which fol­lows a string of sim­i­lar com­ments from oil min­is­ters and pe­tro­leum ex­ec­u­tives in re­cent weeks.

"We think it's a lot of false hope. Ba­si­cally what's been hap­pen­ing over the last month is, as the mar­ket's got­ten in­creas­ingly short, any­time that we see th­ese kinds of head­lines, they re­sult in this kind of rapid change in the price," he told CNBC's "Squawk on the Street" on Fri­day.

Co­hen said there was sim­ply too much dis­trust be­tween de facto OPEC leader and top oil ex­porter Saudi Ara­bia and No. 1 pro­ducer Rus­sia, which he noted has agreed to cuts in the past, but has only en­acted very small ones in re­al­ity. To be sure, short cov­er­ing also fu­eled Fri­day's drive as some traders be­lieve oil hit a tech­ni­cal bot­tom Thurs­day, when U.S. crude fell as low as $26.05. It set­tled above $29 on Fri­day. Cit­i­group has said the bot­tom is at the $26 level.

There was noth­ing new in Thurs­day's UAE head­line, and the re­ac­tion in oil mar­kets has been overblown, John Kil­duff, found­ing part­ner at ad­vi­sory firm Again Cap­i­tal, said Fri­day.

"There was a lot of mo­men­tum play­ers in this mar­ket, and yeah, this is your worst night- mare," he told CNBC's "Fast Money: Half­time Re­port." "You see a head­line like this and you just got short the mar­ket, you're go­ing to puke your po­si­tion. That's what we're see­ing here to­day." He said Saudi Ara­bia will not be con­tent un­til it is cer­tain it has in­flicted enough pain on com­peti­tors, par­tic­u­larly U.S. drillers, whose pro­duc­tion gains in re­cent years con­trib­uted sig­nif­i­cantly to an over­sup­ply that OPEC es­ti­mates at 2 mil­lion bar­rels a day. Kil­duff re­it­er­ated his called that oil will fall to $18 a bar­rel be­fore the mar­ket re­bal­ances.

Den­nis Gart­man, pub­lisher of The Gart­man Let­ter, noted that the CEO of Rus­sian oil gi­ant Ros­neft, Igor Sechin, had re­cently changed his tenor, sug­gest­ing he could pos­si­bly be open to out­put cuts. But he too said a pro­duc­tion draw­down was un­likely.

Gart­man told CNBC's "Squawk Box" on Fri­day that a meet­ing to dis­cuss cuts would prob­a­bly hap­pen and "maybe" yield a pro­duc­tive out­come, but there was ab­so­lutely no chance OPEC mem­bers would abide by quo­tas.

"If there's one thing we've learned from his­tory, what­ever OPEC says about cur­tail­ing pro­duc­tion never comes to fruition. Ev­ery­body cheats," Gart­man said.

Both Gart­man and Co­hen noted that Rus­sian pro­duc­ers are tech­ni­cally un­able to re­duce pro­duc­tion right now be­cause tem­per­a­tures are so cold, wells would freeze and need to be redrilled. Hill­top Se­cu­ri­ties Man­ag­ing Di­rec­tor Mark Grant said Fri­day he be­lieves tech­no­log­i­cal in­no­va­tion in the Amer­i­can oil patch has bro­ken the es­tab­lished or­der in crude mar­kets. "We can pro­duce more oil and de­liver more oil than any­body in the world, which means that all the pro­duc­ing na­tions - Rus­sia, Saudi Ara­bia, Libya, Ye­men, you can go through the whole litany - are toast.

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