Oil Rises as Saudi Arabia Said to Comply With OPEC Output Cuts

Jan 05, 2017 6:50 pm ET

(Bloomberg) -- Oil rose as Saudi Arabia was said to meet its pledged output cut this month and U.S. stockpiles fell the most in almost four months.

The kingdom is going for full compliance with OPEC cuts so other countries do the same, said a person familiar with Saudi policy who asked not to be named because the matter is private. Saudi Arabia announced higher prices for Asian customers next month as it prepares for lower exports. A government report showed U.S. fuel stockpiles surged last week as refineries boosted operating rates and crude supplies tumbled.

Oil last year capped its biggest annual gain since 2009 as the Organization of Petroleum Exporting Countries and 11 nations from outside the group agreed on a plan to reduce supply. While producers including Kuwait, Iraq and Oman say they’ve begun to curtail output, an increase in volumes from countries such as Libya -- spared from cuts -- could put pressure on others.

"The market continues to key on OPEC and what action they are taking to follow through with their promised cuts," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. "The Saudis are the most important member and appear to be taking the lead."

West Texas Intermediate for February delivery rose 50 cents, or 0.9 percent, to settle at $53.76 a barrel on the New York Mercantile Exchange. Total volume traded was 20 percent below the 100-day average at 2:51 p.m.

Brent for March settlement climbed 43 cents, or 0.8 percent, to $56.89 a barrel on the London-based ICE Futures Europe exchange. It closed at a $2.21 premium to March WTI.

Saudi Arabia agreed to cut crude production by 486,000 barrels a day from October levels to 10.058 million starting Jan. 1. Saudi output slipped by 50,000 barrels a day to 10.48 million in December, according to a Bloomberg survey. State-owned Saudi Arabian Oil Co., known as Saudi Aramco, increased prices for February oil sales to Asia and for light grades to the U.S. as it prepares to reduce output.

Gasoline stockpiles rose 8.31 million barrels last week, the most in a year, according to the Energy Information Administration. Inventories of distillate fuel, a category that includes diesel and heating oil, jumped 10.1 million. A gauge of total U.S. fuel demand tumbled to the lowest level since June 2013.

"This was a bearish report on the whole, with total inventories up," Kyle Cooper, director of research with IAF Advisors in Houston, said by telephone. "Demand dropped a lot -- which could be due to the holidays -- while crude production started to edge higher again. Depending on where we close today, we could soon test the $50 area again."

Crude inventories nationwide fell by 7.05 million barrels to 479 million, while stockpiles at Cushing, Oklahoma, the delivery point for WTI, rose to 67.5 million, the highest since May.

Crude imports tumbled by 984,000 barrels a day to an average 7.18 million, the lowest in two months, while fuel exports sank the most since October. The Houston Ship Channel was shut for parts of last week due to fog, which may have interrupted shipments in and out of the refining center.

"Refinery utilization is up as they try to maximize production before they go into seasonal maintenance," Brian Kessens, a managing director and portfolio manager at Tortoise Capital Advisors LLC in Leawood, Kansas, who helps manage $15 billion in energy assets, said by telephone.

Refineries boosted operating rates by 1 percentage point to 92 percent of capacity, the highest level since September. Plants usually operate at a a high level in December as they prepare to meet winter-fuel demand.

©2017 Bloomberg L.P.