Investing.com – Oil prices are up after 10 days of losses, supported by Saudi production cuts. Is that enough to stop the bleeding of the market?
After losing more than 20% over five weeks, U.S. West Texas Intermediate and global oil benchmark Brent jumped about 2% from the start of Monday’s trade in Asia, retaining a portion of those gains by midday trade in New York.
Yet, some analysts remained skeptical whether the half-million-barrels per day reduction from December announced by Saudi Energy Minister Khalid al-Falih was adequate to counter U.S. production, already at weekly record of 11.6 million bpd.
“The reaction by the Saudis has taken the extreme downside out of the market and there could be shorts looking to cover as the tail risk to the downside has ended at least until Dec 6,” said Scott Shelton, energy broker at ICAP (LON:) in Durham, N.C.
Dec. 6 is when OPEC holds its all-important policy-setting meeting in Vienna, where production cuts will most likely top the agenda.
Despite Monday’s rebound, Shelton said overall long positioning remained at two-year lows and shorts sellers could reappear without sufficient rebalancing.
“I feel like the market has lost its bullish mojo, and will need U.S. draws to get excited again and perhaps get these shorts out of the market.”
By 1:05 PM ET (1740 GMT), was up 40 cents, or 0.7%, at $60. per barrel, after rallying more than $1 earlier. On Friday, it hit a 9-month low of $59.27, a dramatic flip from four-year highs of nearly $77 hit in early October.
was up 74 cents, or 1.1%, at $70.92 per barrel, after rising as much $1.69 earlier. On Friday, it sunk to a 7-month low of $69.15 after an October peak of nearly $87.
For Monday’s rally to have legs, oil traders are believed to be looking for cuts of at least 1 million bpd from OPEC to offset higher supplies resulting from generous US waivers on Iranian oil sanctions.
Falih, the Saudi Energy Minister, did say on Monday that technical analysis by OPEC and its allies showed the need for a million barrels to be taken off the market.
Yet, the Joint OPEC and Non-OPEC Market Monitoring Committee meeting the Saudi minister chaired in Abu Dhabi at the weekend did not issue such a resolution. This raises doubts on whether others at the meeting, including non-OPEC member Russia, were keen to cut. The Saudi reductions might also be more seasonal than anything, with Falih acknowledging December to be a slow period for demand.
The market’s underlying concern was voiced by Bank of America Merrill Lynch (NYSE:) in its latest oil note entitled “U.S. Energy Independence”.
“The bigger question is how OPEC+ will factor in the US shale phenomenon this time around,” the Wall Street bank said.
“With oil prices falling by 20% from the highs in recent weeks, the next OPEC+ decision will have to factor in: (1) the massive 2+ million bpd year-on-year surge in U.S. output and (2) the negative demand impact of the ongoing trade tensions.”
Source: Investing.com