The global price of crude extended a rally for a second day amid speculation that oil’s plunge to a five-year low may have been excessive.
Brent oil gained as much as 4.1% in London while West Texas Intermediate crude advanced as much as 4% in New York. Saudi Oil Minister Ali Al-Naimi said the global economic slowdown has contributed to a temporary “problem” in the market, according to a Saudi Press Agency report. An oil union strike in Nigeria, Africa’s biggest crude producer, entered a fourth day and Libya’s Waha field stopped producing after the Es Sider oil port was halted.
“The market is dramatically oversold and it needs a correction,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “You have Libyan production issues and you have the Nigerian strikes. It’s not reversing the market but it’s certainly enabling a short-covering rally.”
WTI January delivery (NYMEX:CLF15) rose 60 cents, or 1.1%, to $57.07 a barrel at 9:06 a.m. on the New York Mercantile Exchange. The more-active February future climbed 56 cents to $57.35. Total volume was about 72% above the 100-day average for the time of day.
Brent for February settlement (NYMEX:SCG15) rose $1.09, or 1.8%, to $62.27 a barrel on the London-based ICE Futures Europe exchange with volume 17% above the 100-day average. The European benchmark crude traded at a premium of $4.70 to WTI for the same month.
Both benchmarks’ 14-day relative strength indexes are below the 30 level traders view as a signal prices may be oversold.
WTI and Brent have slumped about 45% from this year’s peaks in June as a surge in shale drilling lifted U.S. output to the fastest pace in three decades amid slowing growth in world demand. Members of the Organization of Petroleum Exporting Countries including Saudi Arabia, the world’s largest exporter, have resisted calls from producers such as Venezuela and Ecuador to reduce output to stem the price drop.
“The oil market is way oversold and due for a rally,” Amrita Sen, chief analyst at London-based consultants Energy Aspects Ltd., said by e-mail. “Given the scale of price drop, demand growth could surprise significantly to the upside.”
The strike by the Petroleum and Natural Gas Senior Staff Association of Nigeria and Nigerian Union of Petroleum and Natural Gas Workers is aimed at curbing local fuel supply and exports. Nigeria, a member of OPEC, pumped 2.18 million barrels of oil in November, up 4.3% from October, according to data compiled by Bloomberg.
Libya’s Waha field stopped producing, state-run National Oil Corp. spokesman Mohamed Elharari said by phone from Tripoli yesterday. About 1,000 workers were evacuated from the field for safety, according to the official Lana news agency.
Saudi Arabia, the largest producer in OPEC, will stick to its policy to maintain output, Naimi said, according to the agency. Saudi Arabia and OPEC would find it “difficult, if not impossible” to give up market share by cutting crude production, he said. OPEC last month decided to not cut their production at a meeting in Vienna.
“It’s the effective end of OPEC,” Francisco Blanch, head of global commodities and derivatives research for Bank of America, said on Bloomberg TV yesterday. “Basically Saudi has pulled the plug and is letting the market balance itself. If the price of oil doesn’t have a moderating agent, it’s going to be all over the place.”