Brent oil falls as investors await signs of production curbs
NEW YORK (Bloomberg) -- Brent oil declined as investors looked for signs of compliance by OPEC and other producers with an output-reduction accord.
Futures fell 0.7% in London after earlier climbing as much as 2%. Almost 1 Bbbl of oil held in inventories must be used up before global supply and demand are closer to balance, Dana Gas PJSJ CEO Patrick Allman-Ward said in Davos. The high level of compliance with the supply-cut accord and rising global demand should balance the market in the first half of the year, Saudi Arabia’s Energy Minister Khalid Al-Falih said.
Crude has risen since the Organization of Petroleum Exporting Countries and 11 other countries agreed late last year to trim supply by about 1.8 MMbpd. While Middle East producers have signaled they’re rapidly implementing the agreed cuts, the rally’s momentum has fizzled amid concern that higher prices would spur more supply elsewhere. The U.S. recently raised this year’s output estimate, while China’s production is forecast to tumble.
"There’s fighting in the market about what will come from the OPEC deal," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. "There’s a raft of statistics coming out in the next week that may give a sign of how things are panning out. Market participants are ready at the starting block."
Brent for March settlement declined 39 cents, or 0.7%, to $55.47/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.21 premium to March West Texas Intermediate crude.
WTI for February delivery rose 11 cents to settle at $52.48/bbl at on the New York Mercantile Exchange. Monday’s transactions will be booked with Tuesday’s because of the Martin Luther King Jr. holiday in the U.S.
Broken down
The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, dropped to a one-month low. A weaker greenback usually increases investor interest in commodities denominated in the currency.
"The dollar-oil negative correlation has broken down," Kilduff said. "It’s unusual to see them become so detached."
Many countries are “going the extra mile” in making deeper production cuts than they pledged, and OPEC will stop intervening in the market once global crude inventories return to their five-year average, Al-Falih said on Monday. Demand will pick up in the summer and OPEC wants to make sure markets are well-supplied, he said.
“We still have a significant global storage of oil, close to a billion barrels,” Allman-Ward said Tuesday in a Bloomberg TV interview with Francine Lacqua at the World Economic Forum in Davos, Switzerland. Dana Gas, based in the United Arab Emirates, explores for and produces natural gas in the Middle East. Gas is often sold at prices linked to crude oil.
Market balance
The International Energy Agency sees the oil market balancing in the first half of 2017, Executive Director Fatih Birol said in Davos. Bloated global oil stockpiles should start to drop, United Arab Emirates Energy Minister Suhail Al Mazrouei said in an interview in Abu Dhabi.
"We opened the week higher, but couldn’t maintain it," Gene McGillian, manager of market research for Tradition Energy in Stamford, Conn., said by telephone. "We remain a range-bound market and will remain one until we get some signs that they are following through with the cuts."
