Oil rises most since May after Saudi comments on producer talks

By Rachel Adams-Heard, Mark Shenk on 8/11/2016

NEW YORK (Bloomberg) -- Crude climbed the most in three months amid speculation that oil producers could agree on moves to support prices during talks in September.

Futures surged as much as 5.2% in New York. Talks with oil producers in Algiers next month could include possible action to stabilize the market, Saudi Arabia’s energy minister said, according to Reuters. Differences between Saudi Arabia and Iran caused the demise of a proposal to freeze production at an April summit in Doha.

"The market is obviously keying off the Saudi comments about the upcoming talks," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "There’s a greater likelihood that they will be able to pull something together this time, with Iran getting a lot closer to its target and the Saudis being more flexible."

Oil has fluctuated after tumbling more than 20% into a bear market last week. Growth in demand will shrink brimming crude stockpiles even as Saudi Arabia, Kuwait and the United Arab Emirates pump at all-time highs amid competition between members of the Organization of Petroleum Exporting Countries to secure market share, the International Energy Agency said.

West Texas Intermediate for September delivery rose $2.04, or 4.9%, to $43.75/bbl at 12:27 p.m. on the New York Mercantile Exchange. Prices touched $43.86, the highest since July 25. Brent for October settlement rose $2.10, or 4.8%, to $46.15/bbl on the London-based ICE Futures Europe exchange.

OPEC plans to hold informal talks to discuss the market at the International Energy Forum next month in Algiers. Saudi Arabia’s oil minister said the country would act to help re-balance the market if needed, Reuters reported.

"Frankly I’m not sure that OPEC really needs to freeze here given the supply and demand situation seeming to come into balance," said Paul Crovo, a Philadelphia-based oil and equity analyst at PNC Capital Advisors. "We think the fundamentals will take care of themselves as we come into the third quarter and later into the fourth quarter and early 2017."

Refiners around the world will process record volumes of crude this quarter to absorb all-time high production from several Persian Gulf producers, the IEA said. Refiners’ crude processing this quarter will increase by 600,000 bpd from a year earlier to a record 80.6 MMbpd, according to the IEA.

"The word of the day is ‘re-balance.’ We’re going to see heavy refinery runs, and that’s going to draw down some of that crude overhang," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "Higher demand will also bring down the product inventories."

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