Oil prices surge on fresh talk of OPEC meeting on glut

Oil prices extended sharp losses for a second day on Tuesday as traders anticipate another rise in US crude stockpiles, worsening the global glut. (AFP Photo)

NEW YORK: Oil prices surged on Wednesday (Feb 3) on renewed speculation about a potential cut in global production that overshadowed another rise in US crude inventories.

US benchmark West Texas Intermediate for delivery in March leaped US$2.40 (8.0 per cent) to US$32.28 a barrel on the New York Mercantile Exchange.

Brent North Sea crude for April, the European standard, finished at US$35.04 a barrel in London, advancing US$2.32 (7.1 per cent) from Tuesday's settlement.

After two straight days of sharp losses, the market rebounded vigorously.

Andy Lipow of Lipow Oil Associates said that some of the rally was due to weakness in the dollar, which fell after a dim report on the US services sector raised concerns about the strength of the US economy, the world's largest consumer of crude oil.

"But I think more it is due to an announcement by Ecuador that there might be a special OPEC meeting later in February and as a result the markets have moved on the hope that OPEC will reduce its production," Lipow said.

Since last week the market has been attuned to talk that Russia and the Organisation of the Petroleum Exporting Countries may meet to discuss cutting production to address the global oversupply that has driven prices to 12-year lows.

The speculation faded this week but was revived by comments from Ecuador, Lipow said.

The US Department of Energy meanwhile reported that domestic commercial crude stockpiles soared by 7.8 million barrels in the week ending Jan 29. That was almost double market expectations and took total crude inventories to 502.7 million, topping 500 million barrels for the first time on record.

"It is quite surprising how the oil market has reacted to the sharp build in oil inventories data," said analyst Fawad Razaqzada at trading firm City Index. "This suggests that most of the bad news is in the price and WTI may stabilise around the US$30 level now," he told AFP.