Oil traded above $60 a barrel in London amid the highest volatility in more than three years as Saudi Arabia, the world’s largest crude exporter, is seen to be signalling its confidence in the market.
Brent futures rose as much as 0.6 per cent, climbing for the second time in three days. Saudi Arabia's assumption of oil at $80 a barrel next year is sending a message that the government expects a price rebound, according to John Sfakianakis, a former economic adviser to the kingdom's finance ministry.
Implied volatility for at-the-money options this week increased to the highest since October 2011, data compiled by Bloomberg show. Oil has declined 45 per cent this year, poised for the biggest drop since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share while the highest US production in three decades exacerbated a global glut. Crude prices are "fair" at about $70 to $80 a barrel, Iraq's oil minister Adel Abdul Mahdi said.
Brent for February settlement gained as much as 38 cents to $60.62 a barrel on the London-based ICE Futures Europe exchange . The contract fell $1.45 to $60.24 on Christmas Eve. The European benchmark crude traded at a premium of $4.42 to West Texas Intermediate. Prices have slid 1.5 per cent this week, set for a fifth weekly loss.
Saudi Budget WTI for February delivery advanced as much as 39 cents, or 0.7 per cent, to $56.23 in electronic trading on the New York Mercantile Exchange. It decreased $1.28 to $55.84 on Christmas Eve. The volume of all futures traded was about 49 per cent below the 100-day average.
The Saudi government is probably assuming an oil price of $80 a barrel for 2015, down from this year's $103, said Mr Sfakianakis, the Middle East director at Ashmore Group, an asset manager in London.
Oil accounted for 89 per cent of the nation’s 2014 revenue, according to the finance ministry. Saudi Arabia is confident that crude prices will rise as global economic growth boosts demand, while high-cost producers cut back, oil minister Ali Al-Naimi said earlier this month.
Iraq this week approved a budget based on oil at $60 a barrel. The government in Baghdad accepted the "Saudi theory" that Opec should protect its market share and let prices drop to reduce output elsewhere, oil minister Abdul Mahdi said in an interview.
Libya Conflict
Opec, whose 12 members supply about 40 per cent of the world’s oil, decided at a November 27th meeting to maintain its production target at 30 million barrels a day. The group pumped 30.56 million a day in November, exceeding its target for a sixth straight month, a Bloomberg survey of companies, producers and analysts shows.
In Libya, the Petroleum Facilities Guard called in air strikes on Islamist militias that it said had shelled the country's largest oil port at Es Sider. Libya's output has fallen to 352,000 barrels a day, compared with as much as 900,000 a day in October, according to Mohamed Elharari, a spokesman at state-run National Oil.
Implied volatility for at-the-money options in the front- month Brent contract, a measure of expected futures movements and an indicator of options value, rose to 49.9 per cent this week, data compiled by Bloomberg show. It’s at about 47 per cent currently. WTI’s volatility is also near the highest since October 2011.
Bloomberg
