By Timothy Puko
Oil prices vaulted to their biggest gains in more than a month
after Saudi Arabia and its allies launched a military campaign in
neighboring Yemen, adding to concerns about the security of crude
supplies in a region already fraught with tensions.
The U.S. oil benchmark rose for the fifth straight session,
surpassing $50 a barrel following the start of airstrikes to defend
Yemen's existing government against Iranian-backed rebels.
While there were no immediate signs of any oil-supply
disruption, the intervention by Saudi Arabia, the world's No. 1
crude-oil exporter, stoked fears of a wider conflict among the
biggest powers in the oil-rich region. Yemen itself produces a
small amount of oil, but the country lies at the heart of some of
the most important energy routes, with 7% of global oil maritime
trade passing by its coast, according to U.S. Energy Information
Administration estimates.
Many traders and analysts say the rally is unlikely to last
because the world remains mired in a glut of crude oil. The price
of oil had plunged 59% from June 2014 to mid-March as supplies
bolstered by U.S. shale-oil producers overwhelmed demand.
Rob Christian, portfolio manager at Franklin Templeton
Investments' Franklin K2 Alternative Strategies Fund, which has
$10.3 billion in assets under management, called Thursday's move an
"overreaction."
"The (oil) market is still oversupplied," Mr. Christian added.
"That was the same today, yesterday, Tuesday and Monday. That
hasn't changed."
But some bullish investors say Thursday's sharp move vindicates
bottom-pickers who have been piling into the market. U.S. oil rose
4.5% to a three-week high of $51.43 a barrel on the New York
Mercantile Exchange after rallying as much as 6.6% in early trading
in Asia. Since hitting a six-year low on March 17, the price has
bounced 18%. Thursday's close was the highest since March 4.
Brent, the global benchmark, gained 4.8% to $59.19 a barrel on
ICE Futures Europe.
"Yemen is a nonissue in terms of actual oil production," said Ed
Cowart, who co-manages energy investments at Eagle Asset
Management, a Florida-based asset manager overseeing $35 billion.
"It just ... reminds people how fragile the supply lines really are
in that part of the world."
Mr. Cowart has made bets on stocks, such as energy-company
shares, that would benefit from a rebound in crude. The Mideast
conflicts are setting a floor for oil, he said. On Thursday, the
S&P 500 Energy index declined 0.2%, in line with the broader
stock market.
Some market observers said the situation in the oil market
recalled June 2014, when Islamic State made big advances into Iraq.
Oil prices at the time surged to nine-month highs as the militant
group threatened Baghdad and sparked worries that Iraq's
significant oil production was under threat.
Momentum quickly turned as oil's historic selloff began shortly
afterward. Investors felt they no longer had to pay a premium due
to fears that wars and other strife would threaten supplies, money
managers said.
"A lot of this stuff (in Yemen) had sort of been simmering ...
for weeks if not months," said Ted Harper, who manages energy
investments at Frost Investment Advisors in Houston, with $9.9
billion under management. "You (ignore it) at your own peril."
But Mr. Harper, who oversees $40 million in stock investments in
resource companies, said he isn't yet adding energy exposure. He
said U.S. oil could still fall into the $30-a-barrel range before a
sustained turnaround later in the year.
Only a few hours before Saudi Arabia launched its campaign, the
EIA reported that U.S. commercial crude-oil investors hit a fresh
85-year high and production was at a record high.
Nymex reformulated gasoline blendstock for April--the benchmark
gasoline contract--gained 2.4% to $1.8817 a gallon. Diesel futures
rose 3.4% to $1.7876 a gallon.
Georgi Kantchev contributed to this article.
Write to Timothy Puko at tim.puko@wsj.com
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