Brent crude rose above $40 for the first time since December as major producers prepared to meet to discuss a production freeze and U.S. output finally shows signs of declining.
The European benchmark rose as much as 5.1%. A meeting among major producers to discuss freezing output may be held in Russia, Doha or Vienna sometime between March 20 and April 1, Russian Energy Minister Alexander Novak said on state television. U.S. oil rigs fell by 8 to 392 last week, the lowest level since December 2009, according to Baker Hughes Inc.
The U.S. oil benchmark on Friday completed a third week of gains, the longest run since May, as U.S. crude production slid to the lowest since November 2014. Still, the nation’s stockpiles are the largest in more than eight decades and continue growing. Hedge funds unwound bearish bets at the fastest pace in 10 months, U.S. Commodity Futures Trading Commission data showed, as the prospect of prices sinking to $20 receded.
“Market sentiment is turning positive because of this expected meeting to put a cap on production,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “U.S. production is definitely going to decline throughout the year.”
Brent for May settlement rose $1.74, or 4.5%, to $40.46/bbl at 12:18 p.m. New York time on the London-based ICE Futures Europe exchange after touching $40.68. The grade gained for a sixth day, the longest rally since Nov. 25. The global benchmark crude was at a premium of $1.1 to West Texas Intermediate for May.
WTI for April delivery added $1.59, or 4.4%, to $37.51/bbl on the New York Mercantile Exchange after reaching $37.68, the highest since Jan. 4.
“Investors and traders have been eagerly awaiting their chance to ride the ever-impending oil market rally,” analysts at Barclays Plc including Miswin Mahesh in London said in a report. “Announcements of a second year of massive upstream capex cuts and talks of an output freeze among certain OPEC and non-OPEC countries seem to have provided support to sentiment.”
Speculators reduced their short positions in WTI crude by 15%, or 25,639 futures and options contracts combined, to 150,718 in the week ended March 1, the biggest decline since April 21, according to CFTC data. The exodus of bearish bets resulted in a 24,886-contract jump in the net-long position.
U.S. production dropped for a sixth week to 9.08 MMbopd, according to Energy Information Administration data. Stockpiles are at 518 MMbbl, the most since 1930.
Latest on the oil freeze agreement:
Azerbaijan would join producers in freezing production, ANS TV reports, citing Rovnaq Abdullayev, president of state-run Socar. Current oil prices are forcing all producers to freeze output and there will be a price correction by year-end, United Arab Emirates Energy Minister Suhail Al Mazrouei told reporters in Abu Dhabi. Saudi Arabia, Russia, Qatar and Venezuela agreed last month they would freeze output, if other producers followed suit, in an effort to tackle a global oversupply in the oil market.