By Nicole Friedman
U.S. oil prices posted their biggest one-day gain in two years
on Monday as traders locked in profits on bearish bets following
last week's selloff.
But many market watchers were skeptical that Monday's gains
signaled that oil prices had reached their bottom, pointing to
global supplies that continue to overwhelm demand.
Oil prices tumbled to multiyear lows after the Organization of
the Petroleum Exporting Countries decided on Thursday to maintain
its production quotas, rather than agreeing to support prices by
lowering its output target.
The group's decision sent shock waves through financial markets
that continued to be felt on Monday. Shares of some U.S. oil
producers added to last week's declines, highlighting concerns
about these companies' ability to operate expensive shale-oil
fields amid plunging prices. Bonds of low-rated energy companies
also sank, reflecting fears that some producers will default if
prices fail to recover.
Many investors and analysts believe with OPEC on the sidelines
it will take cutbacks by companies in the U.S. and Canada to bring
supply and demand in line and pull the market out of its swoon.
That day may not come until deep into 2015 or beyond, some analysts
say.
"The era of $100 [a barrel] oil is over," Citigroup said in a
note. "Oil prices appear to be falling rapidly to--if they haven't
already reached--production costs."
On Monday, light, sweet oil for January delivery shot up 4.3% to
$69.00 a barrel from Friday's close, recovering from a more-than
five-year low below $64 a barrel hit in overnight trading. It was
the biggest one-day percentage gain for the U.S. benchmark since
August 2012. Brent futures, the international benchmark, gained
3.4% to end at $72.54 a barrel.
Investors said much of Monday's activity was driven by traders
closing out profitable bets on falling prices or opening positions
that would protect them should the market rebound. Both the U.S.
benchmark and Brent slumped Thursday and Friday to fresh multiyear
lows, posting two-day losses of about 10%.
"Today's a little bit more of a rebound from Friday's
plastering," rather than a long-lasting change in direction, said
Kyle Cooper, analyst at IAF Advisors in Houston. "We got [to
five-year lows] really quick, and it's not an entirely bad thing to
take some profits."
Roland Austrup, who manages $54 million as chief executive of
Integrated Managed Futures Corp., said his funds posted 6% gains in
November largely due to a bet that oil prices would fall. After
last week's selloff, he kept his wagers on lower oil prices but
used options to reduce losses in case prices rose.
"Anytime you get a big significant move like this, it's prudent
to hedge, " Mr. Austrup said. "It certainly doesn't reflect a view
that it's over...There's no impetus for prices to go up."
Volatility in the oil market has caught out some funds. Brevan
Howard Asset Management LLP plans to close its $630 million
commodity hedge fund after the fund suffered heavy losses in energy
markets in September, people familiar with the fund said
Saturday.
The slump in oil prices is pressuring energy companies, and
analysts and bankers expect a string of deal-making as highly
levered companies become attractive for acquisition.
Halliburton Co. is in the process of buying rival oil-service
company Baker Hughes Inc. Weatherford International PLC on Monday
said it agreed to sell its engineered-chemistry and drilling-fluids
businesses to an affiliate of Berkshire Hathaway Inc.'s Lubrizol
unit. Weatherford said it expects to use proceeds from the deal,
which is expected to close before the end of the year, to pay down
debt.
Some investors are looking for signs that slumping oil prices
could spark higher demand, and U.S. employment data on Friday will
be a key indicator, said Bob Yawger, director of the futures
division at Mizuho Securities USA Inc. Higher employment can spur
more gasoline demand, as more commuters drive to work. The national
average price of retail gasoline was $2.77 a gallon Monday, down 50
cents from a year ago.
Upcoming macroeconomic reports "will be looked at as a demand
indicator and the energy market will adjust itself accordingly,"
Mr. Yawger said.
But without action from OPEC, the market will remain
oversupplied, said Barclays in a note. Barclays lowered its
oil-price forecasts for this year and next after the OPEC meeting,
as did BNP Paribas SA and Citigroup Inc. Barclays now expects Brent
prices to average $72 a barrel next year, while BNP forecasts $77 a
barrel and Citi has called for $80 a barrel.
"It will have to endure a volatile adjustment period while
non-OPEC supply, demand and even some OPEC producers adjust,"
analysts at Barclays said.
January reformulated gasoline blendstock, or RBOB, rose 5.34
cents, or 2.9%, to $1.8810 a gallon.
January diesel gained 5.12 cents, or 2.4%, to $2.2124 a
gallon.
Matt Wirz, Laurence Fletcher, Chiara Albanese and Michael Calia
contributed to this article.
Write to Nicole Friedman at nicole.friedman@wsj.com
Access Investor Kit for Barclays Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0031348658
Access Investor Kit for Baker Hughes, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0572241075
Access Investor Kit for Barclays Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US06738E2046
Access Investor Kit for Citigroup, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US1729674242
Access Investor Kit for Halliburton Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US4062161017
Subscribe to WSJ: http://online.wsj.com?mod=djnwires