Oil prices ended modestly higher Monday in up-and-down trade amid news that a Russian ambassador to Turkey was shot and killed in Ankara.
Traders said news of the murder of Ambassador Andrey Karlov raised concerns about geopolitical risks and helped to push crude prices slightly higher by forcing some traders to unwind bearish bets that the value of futures will decline.
Volatile trading in crude-oil futures came as the January contract for West Texas Intermediate crude-oil was set to expire Tuesday. Contract expirations can lead to choppy trading.
West Texas Intermediate crude oil for February delivery CLG7, +0.21% the most active contract, closed up 11 cents, or 0.2%, at $53.06 a barrel. The January contractCLF7, +0.42% which expires on Tuesday, ended up 22 cents, or 0.4%, at $52.12 a barrel.
Meanwhile, February Brent crude LCOG7, -0.25% on London’s ICE Futures exchange retreated 29 cents, or 0.5%, at $54.92 a barrel.
Phil Flynn, senior market analyst at Price Futures Group, said crude-oil prices are more sensitive to geopolitical news because supplies are tighter in the wake of the Organization of the Petroleum Exporting Countries’ pledge to cut output by 1.2 million barrels a day to a ceiling of 32.5 million.
Political unrest tends to cause investors to worry that oil supplies will be hurt, which can boost prices.
“The murder of this Turkish diplomat is raising concerns about political risk,” Flynn said. “Trading might move more on these geopolitical concerns now that the supply situation is getting tighter,” he said.
Earlier in the session, oil futures flipped between small gains and losses as market participants harbored doubts that OPEC’s target product cuts could be met, especially if members of the cartel exempt from cuts were to ramp up output.
Even before the shooting, Matt Smith, ClipperData’s director of commodity research, said trade was likely to be volatile ahead of the Christmas holiday when fewer traders are at their desks and investors await signs that the agreement between OPEC and non-OPEC members is taking hold.
Lower trading activity tends to increase the prospect of big prices swings, especially around the weekly U.S. crude inventory reports on Tuesday and Wednesday.
“I think we will see less trading due to the holiday period but traders also are waiting to see the impact of potential cuts from OPEC and non-OPEC members starting to show up in the data,” Smith told MarketWatch.
In fundamental factors influencing crude, The Wall Street Journal reported Sunday that Libya’s National Oil Co. has called a halt to the planned relaunch of production at oil fields in the country’s western regions after a militia threatened to block the petroleum from reaching the market.
However, some market participants said the build up of production in other areas, including the U.S., may weigh on those bullish signs for crude prices.
Robbie Fraser, commodity analyst at Schneider Electric, said indications of a ramp up by U.S. shale producers is capping oil’s recent gains.
“There’s a lot of concern about U.S. production after rig counts [last] Friday, with all of that coming out of [the Permian region],” Fraser said. The Permian basin, which spans from Texas to southeastern New Mexico, is considered the most prolific oil-producing region in the U.S.
The latest weekly update from Baker Hughes BHI, -0.99% showed that the number of U.S. rigs actively drilling for oil, a proxy for oil activity, rose by 12 to 510, the highest level since January. Still, the count for rigs drilling for oil is still far from its peak levels, said Flynn, who said he wasn’t overly concerned about increased production in the U.S., if OPEC members adhere to reduced production targets.
As far as adhering to OPEC’s production limits, New York-based Morgan Stanley said the best-case scenario was if Saudi Arabia cut to 9.5 million barrels a day while, at the same time, Libya and Nigeria failed to push production above current levels. Analysts at the bank said that OPEC production in January would be about 33 million barrels a day, enough to be viewed as positive by the market.
Germany’s Commerzbank cited speculative financial investors as the major contributors to the current price rally. Net long positions in West Texas Intermediate oil, a market term describing a contract where the buyer expects prices to rise, rose by 32,200 in the week to Dec. 13 to hit 274,800. This confidence also meant the bank advised some caution.
“In view of the high optimism shown by financial investors — net long positions currently find themselves at their highest level since July 2014 — we see considerable correction potential if the promised production cuts are not implemented or are only partially implemented by the oil producers,” Commerzbank said.
Elsewhere on the New York Mercantile Exchange, Nymex reformulated gasoline blendstock for January RBF7, +0.13% — the benchmark gasoline contract — gained .68 cent, or 0.4%, to close at $1.5639 a gallon. January heating oil HOF7, -0.29% rose .33 cents, or 0.2%, to $1.6690 a gallon. Natural-gas futures NGF17, +0.38%meanwhile, ended down 2.3 cents, or 0.7%, at $3.3920 per million British thermal units.