Oil treads water as OPEC prolongs decision to extend, deepen output cuts

By Jessica Summers on 9/22/2017

NEW YORK (Bloomberg) -- Oil barely moved after an OPEC gathering concluded with no decision on an extension or deepening of supply cuts.

Futures toggled within a 49-cent range in New York on Friday, heading for a third weekly gain, while the global benchmark traded in London rose close to a seven-month intraday high. As an OPEC committee meeting wrapped up, Russian Energy Minister Alexander Novak said the cartel and allied producers can wait until at least January to consider prolonging the output limits. The next key event will be a Nov. 30 meeting of OPEC ministers.

“It’s going to come down to the meeting,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said in a telephone interview. Traders will be more interested in deeper production cuts than an extension of the existing constraints, he said.

Oil is on track for only its third monthly gain for 2017 as supply cuts by the Organization of Petroleum Exporting Countries and partners such as Russia showed signs of whittling the worldwide crude glut. The oil market is well on its way to rebalancing, Kuwait’s Oil Minister Issam Almarzooq said. Nigeria, which along with Libya is currently exempt from the supply-reduction deal, reiterated that it would cap output once its production stabilizes around 1.8 MMbpd

“As expected, the message is the deal is working, inventories have started to fall, too early to commit what they should do in March next year,” said  Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “The oil price doesn’t put them under any pressure to do anything additional for now. Commitment remains high.”

West Texas Intermediate for November delivery rose 5 cents to $50.60/bbl at 11:01 a.m. on the New York Mercantile Exchange. Total volume traded was about 37% below the 100-day average. Prices are on track for a 1.5% weekly advance.

Too Soon

Brent for November settlement climbed 34 cents to $56.77/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.17 to WTI.

Some of the countries participating in the cuts have room to improve compliance with the caps they signed up for, Russia’s Novak said.

Oil inventories in developed economies have dropped by 170 MMbbl since January and backwardation in prices demonstrates stockpiles are shrinking and demand is rising, Kuwait’s Almarzooq said before the meeting on Friday. There is no reason for deeper cuts, he told reporters in Vienna. Meanwhile, OPEC’s Secretary General  Mohammad Barkindo said it’s critical for OPEC to maintain focus and fully implement agreed curbs.

Oil-market news. OPEC and its allies are evaluating all parameters including exports to gauge the effectiveness of cuts, Venezuelan Oil Minister Eulogio del Pino said in Vienna. Billionaire oilman Harold Hamm says the U.S. government was way too optimistic with its prediction of more than 1 MMbbl in new daily U.S. production, and the error is “distorting” global crude prices.

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