Oil Wobbles on OPEC Comment

Secretary-General of OPEC Says Prices May Have Hit a Bottom

An idle pump in Illinois, U.S. With oil prices near a 51/2-year low, oil companies are beginning to slow drilling operations in the country. PHOTO: GETTY IMAGES

Jan. 26, 2015:  Oil prices wavered between gains and losses Monday as traders weighed potentially bullish comments from the Organization of the Petroleum Exporting Countries against ongoing concerns that the market is oversupplied.

Oil prices have plunged more than 55% since mid-June on concerns about ample supplies and tepid demand. OPEC decided in November not to lower its output quota, sending prices tumbling lower on the expectation that without intervention from OPEC, it could take months or years for the global glut of oil to shrink.

OPEC Secretary-General Abdalla Salem el-Badri said in an interview with Reuters on Monday that with prices between $45 and $55 a barrel, “I think maybe they reached the bottom and will see some rebound very soon.”

Prices, which had been trading in the red overnight, turned positive on the news.

U.S. oil for March delivery rose as high as $46.11 a barrel, up from $45 a barrel earlier in the day, on the New York Mercantile Exchange.

Prices recently traded down 21 cents, or 0.5%, at $45.38 a barrel.

Brent, the global benchmark, rose from $48 a barrel to $49.29 a barrel after the interview was released. Prices recently fell 37 cents, or 0.8%, to $48.42 a barrel on ICE Futures Europe.

At lower prices, Mr. Badri said, producers won’t invest in new output and supplies will shrink.

“Maybe we will go to $200 if there is a real shortage of supply because of the lack of investment,” Mr. Badri told Reuters.

However, he said, “it will take another 4-5 months” before OPEC members talk about a change in policy.

“We will see how the market behaves at the end of the first half of 2015,” he said.

Mr. Badri’s comments “suggest that OPEC will continue to monitor the oil markets and adjust strategy as the market evolves, but do not necessarily imply any action is imminent,” said Simmons & Co. International in a note.

Earlier Monday, prices fell to fresh lows on concerns that the outcome of the Greek election would increase uncertainty for Europe’s economy. Saudi Arabia, OPEC’s top producer, also reaffirmed that its new king won’t alter the country’s policy on maintaining its oil output, weighing on prices.

Gasoline futures recently traded down 1.55 cents, or 1.2%, at $1.3324 a gallon.

Diesel futures rose 1.03 cents, or 0.6%, to $1.6570 a gallon.

Courtesy: The Wall Street Journal