Oil spikes on rumors of Russian oil cuts
NEW YORK -- Oil prices spiked 11 percent Thursday as rumors swirled that Russia, which vies with Saudi Arabia as the world's largest oil producer, would join OPEC in slashing crude production.
Benchmark crude for April delivery jumped $4.70 to settle at $47.03 a barrel on the New York Mercantile Exchange. In London, Brent prices gained $3.69 to settle at $44.88 on the ICE Futures exchange.
Rachel Ziemba, an analyst for RGE Monitor said investors latched onto reports that Russian Vice Premier Igor Sechin would attend an OPEC meeting Sunday in Vienna. Russia has flirted with OPEC before, and investors snapped up crude stocks on the expectation that it would form a pact to cut oil production to balance weakening global demand.
"It's unlikely that Russia will join OPEC," said Ziemba, who focuses on Russia and other major oil exporters. "But in this environment, people are looking for reasons to send oil prices up."
Crude prices struck five-year lows recently, and many believe they've hit bottom.
According to Russian news agencies, Sechin said Russia supports the idea of trimming production even more to drain a huge buildup of crude around the world.
"This volume puts pressure on market indicators and leads to lower prices," Sechin said.
Investors have been keenly interested in whether Russia would join the 12-member group. But even if it snubs OPEC again, as it did during the last OPEC meeting in December, Russian oil production will be down this year nevertheless, analyst Phil Flynn said.
"They haven't invested the type of money they need to keep production levels rising," Flynn said.
Oil traders and brokers have scrambled this week to predict which way the market will turn.
But prices plunged 7 percent Wednesday on signs that supply cuts have not caught up with the severe erosion in energy demand, which this year has left the world swimming in surplus oil.
Crude traders made up for those losses and then some Thursday.
Still, trading volume for benchmark crude was especially light as investors parked their money elsewhere, Cameron Hanover analyst Peter Beutel said. Traders were waiting for Friday's reports on global demand expectations by OPEC and by the International Energy Agency in Paris, he said.
At its meeting Sunday, OPEC members will decide if another production cut, on top of the 4.2 million barrels per day already announced, is needed to stabilize oil prices.
"There's so many questions right now," Beutel said.
The Organization of the Petroleum Exporting Countries has sent mixed messages about whether it will cut production again, or focus more on making sure member states comply with the current reductions.
OPEC has long suffered a credibility problem, with some countries cheating on production limits when their budgets get squeezed.
After six months of cutting supplies, OPEC countries haven't reached their targeted production levels, according to a survey by Platts released late Wednesday. The Platts survey found that OPEC drew 28.1 billion barrels a day in February, suggesting that it's trimmed only 80 percent of its targeted cut.
Saudi Arabia said recently that it would focus on enforcing those production levels agreed to last year.
U.S. Energy Secretary Steven Chu will try to persuade OPEC ministers to avoid squeezing oil supplies more than they already have. Tighter supplies might boost oil prices, but that will put extra pressure on employers and possibly extend the global recession.
On Thursday, the government reported that retail sales fell in February for the seventh time in the past eight months.
And the Labor Department reported that first-time requests for unemployment insurance rose to 654,000 from the previous week's upwardly revised figure of 645,000, above analysts' expectations.
The number of people receiving benefits for more than a week also increased by 193,000 to 5.3 million, the most on records dating back to 1967. That's the sixth time in the past seven weeks that the jobless claims rolls have set a record high.
The Energy Department's Energy Information Administration said Thursday that U.S. stores of natural gas fell more than expected last week. The government reported that seasonal demand continued to rise, though it remains far below historical norms.
Retail gasoline prices dropped for the fourth straight day, sliding overnight to a national average of $1.931 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Pump prices are up 0.3 cents a gallon from a month ago, but they're $1.315 a gallon cheaper than last year.
In other Nymex trading, gasoline for April delivery jumped 9.45 cents to settle at $1.33457 a gallon, while heating oil gained 9.3 cents to settle at $1.2264 a gallon. Natural gas for April delivery rose 19.7 cents to settle at $3.995 per 1,000 cubic feet.