Crude futures settled higher Wednesday, ending 12 consecutive days of declines as reports of OPEC production cuts eased market concerns of oversupply.
ICE January Brent settled 65 cents higher at $66.12/b and NYMEX WTI was up 56 cents at $56.25/b. The higher WTI settle ended the longest-ever streak of day-on-day declines in contract history.
The market moved higher early in the session on the back of a report suggesting that OPEC may cut production by up to 1.4 million b/d. Earlier this week, Saudi Arabian Energy Minister Khalid al-Falih said OPEC and its partners would need to cut at least 1 million b/d from October's output levels in order to avoid oversupply.
The news of a larger production cut eased market concerns of oversupply, sending markets higher. But the report was also bullish in that the larger cuts would set OPEC on a collision course with US President Donald Trump.
On Monday, Trump called for OPEC and its partners to uphold higher production levels, sending oil markets sharply lower over the past two sessions.
But Wednesday's report signaled that OPEC may be willing to push back on pressure from Washington in order to stabilize the market.
Despite Wednesday's uptick, the long-term sustainability of the rally remained in question due to market expectations of a continued build in US crude supply in the US Energy Information Administration inventory report, which was delayed until Thursday this week due to US federal holiday on Monday.
"I'm not sure how long it's going to hold here with the EIA storage data coming out tomorrow," Mizuho futures division director Robert Yawger said. "[The data] is a tough hurdle tomorrow, and we could very easily come back under pressure."
Market fundamentals also suggest that price volatility is likely to remain high in the near term.
Implied volatility for NYMEX crude options across the front three months was trading above 40% Wednesday, CQG data showed, signaling downside risk has not abated despite the rebound in prompt crude prices (see story, 1920 GMT).
"The large concentration of open interest in put positions at the $50/b, $55/b, and $60/b strikes suggests that price volatility will remain extremely high while WTI prices remain in the $50-$60/b range," Goldman Sachs analysts said in a note. "While we expect the move to be to the upside out of this trading range, given the large concentration of puts at $50/b, a temporary move in prices to near $50/b should not be precluded."
Products futures settled higher despite coming under pressure later in Wednesday's session. NYMEX December ULSD settled up 3.34 cents at $2.0959/gal and NYMEX December RBOB finished Wednesday up 1.79 cents at $1.5606/gal.
