Oil sees biggest 3- day surge in 25 years

OPEC hints at trimming output; U. S. data lowered

Oil prices surged Monday, capping their biggest three- day gain in 25 years, as the Organization of Petroleum Exporting Countries suggested it may be ready to scale back output and the government cut its estimates of U. S. oil production.

OPEC said in an article that it “stands ready to talk to all other producers” to achieve “fair and reasonable prices.”

“But this has to be a level playing field,” the cartel added in its monthly OPEC Bulletin. “OPEC will protect its own interests.” Though the article does not spell out how the discussion would go, the focus would clearly be on how to moderate production in a way to drive up prices, which fell below $ 40 a barrel this month.

As word spread that OPEC is ready to deal, oil prices rebounded Monday. U. S. crude prices rose $ 3.98, almost 9%, to settle at $ 49.20 a barrel in New York. Prices are up 28% since Thursday. Bloomberg says it was the biggest three- day gain in 25 years. Brent crude, the international standard, was up $ 3.61 to $ 53.60.

A sustained rise in oil prices could prop up gas prices, which are likely to fall as the summer driving season comes to an end and refinery maintenance, which has limited supplies, wraps up.

Independent oil analyst Philip Verleger says the article doesn’t reflect Saudi Arabia’s plans to pump oil at full throttle. The country, he says, can make a profit as long as oil is above its costs of $ 3 to $ 5 a barrel, and it is intent on driving some producers — in Canada, Venezuela or the USA — out of business. “OPEC is irrelevant,” he says.

A bigger factor in the price jump, he says, is that the Energy Information Administration trimmed its estimate of U. S. production from January to May by 40,000 to 130,000 barrels per day. It cut its estimate of June output by 100,000 barrels a day. “We’re producing a lot less oil than we thought we were,” Verleger says.

After peaking at 9.5 million barrels a day in April, research firm Genscape says, U. S. output is poised to fall to 8.6 million barrels per day by July 2016.

Tom Kloza, chief global analyst at the Oil Price Information Service, says Monday’s gains were probably driven in part by traders looking to hedge their previous bets on falling prices. “This does not mean this is a new bull market for oil,” he says, noting supplies remain abundant while global demand has weakened.