Weekly Review

The oil markets climbed through Thursday last week in hopes that the Saudi-Russian “pact” to freeze oil output would lead to lower production and higher prices. After it became clear on Thursday that countries adhering to the pact were already pumping oil as fast as they could and had little to no interest in lowering production unless forced to by geology, the markets began to fall. In New York, where futures had traded close to $26 a barrel the week before last, prices peaked at nearly $32 before falling back to close Friday at $29.64. London followed a similar pattern, climbing from $30 to nearly $36 before falling away to close at $32.91. This was the third mini price spike we have had in the past year based on stories that an agreement was in the offing that might cut production.

Oil prices plunged for four days last week, settling at a recent low of $26.21 in New York, a drop of nearly 30 percent since the start of the year, and $30.06 in London a 20 percent drop this year. The inevitable rebound came on Friday with a vigorous jump for the day of $3.23 or 12.3 percent in New York to close at $29.44, and $3.30 or 11 percent to $33.36 in London. This time the rebound was started by rumors out of the UAE that OPEC, while not considering a production cut, might be willing to consider halting further increases in production. This rumor was seen by traders as a willingness on the part of OPEC to take charge of the oil supply situation for the first time since the crisis began. Another factor contributing to the decline was the long weekend in the US and the unwillingness of traders to be caught in short positions with prices so low. As one analyst said, “every time someone in OPEC comes out and says we are willing to cooperate, there is always a knee-jerk reaction on the part of oil traders.” “No one wants to be caught selling futures at the bottom of the move.”