Oil futures surged on Wednesday, after Russia said it was discussing the possibility of co-operation with OPEC, fanning hopes that a deal was in the works to reduce oversupply that sent prices the lowest levels in a dozen years last week.
Russia’s energy ministry said possible coordination with the Organization of the Petroleum Exporting Countries (OPEC) was discussed at a meeting with Russian oil companies on Wednesday.
Top non-OPEC producer, Russia has in the past been unwilling to cut oil output, as it battles for market share with OPEC king-pin Saudi Arabia.
“I remain skeptical, at the end of the day, about that happening as the oil producers are looking at the other guy to cut production while maintaining their own levels,” Andrew Lipow of Lipow Oil Associates said.
“I think the geopolitical factors in the Middle East are playing a bigger part in the actual oil production than the statements from energy ministers who’d like to see higher prices.”
Hints of a possible deal between OPEC members and rival producers had already helped oil rally 4 percent on Tuesday.
Brent crude rose $1.40, or 4.4 percent, to $33.20 a barrel, by 12:53 p.m. EST (1753 GMT), after touching a session high of $33.49.
U.S. crude was $1.02 higher at $32.47 per barrel, a 3.2 percent gain, having topped out at $32.84.
Crude was looking firm before the Russia news on the back of a U.S. Energy Department report showing a surprise spike in demand for refined products like heating oil last week, when a massive blizzard hit the U.S. Northeast.
Heating oil futures rose 6 percent, boosted in part by forecasts for more cold weather later this week.
The U.S. Energy Information Administration said inventories of distillates, fell more than 4 million barrels, trumping expectations for a rise of about 2 million.
“The draw in distillate stocks is bullish, but we know there was cold weather in the United States in the last week, so I would say the reason behind the draw has something to do with the cold winter weather and, as such, the impact should be short-lived,” Tamas Varga of PVM Oil Associates said.
The data also showed U.S. crude oil stocks hit their highest on record in the week to Jan. 22, due largely to increases on the U.S. Gulf Coast, a major oil hub.
That inventory surge helped fuel the rally instead of fanning worries about excess supply, amid relief it fell short of an 11.5 million-barrel build reported by the American Petroleum Institute late Tuesday.
“I think we’re in this mode where little things can set the market off into a reversal,” Energy Management Institute analyst Dominick Chirichella said. “We’re heading into a choppy trading period right now.” (Reuters)