Featured # Markets | 4 years ago

Oil Prices Drop From One-Year Highs, Affected By OPEC Deal Fears

Oil dropped from one-year highs on Tuesday, affected by worries that a production curb by the world’s largest exporters might not be enough to corrode a two-year old global supply glut of unwanted crude oil. Oil prices increased as much as 3% on Monday, following Russia and Saudi Arabia both commented a a deal between OPEC and non-OPEC members like Russia in limiting crude output was probable.

December Brent crude oil futures LCOc1 declined $0.42 at $52.72 a barrel by 1100 GMT, under Monday’s one-year high at $53.73, but off an intraday low at $52.51, while U.S. futures CLc1 fell $0.43 at $50.92 a barrel. Global oil supply could fall in line more rapidly with demand if OPEC and Russia agree to a sharp enough limit in production, but it is cloudy on how quickly this might happen, the IEA said on Tuesday.

“The word I look at is ‘if’,” Saxo Bank senior manager Ole Hansen stated. “OPEC’s compliance (track record) with its own limits is not good.

“What it all adds up to is an increased belief that a firm bottom has been established, but as the market moves higher the risk of self-defeat rises as it opens the door right open for the return of production growth among high-cost producers,” he commented.

“Underlying skcepticism that global oil producers will succeed in taking coordinated action to support prices is therefore alive and well,” PVM Oil Associates analyst Stephen Brennock commented in a note.

“Meanwhile, of those that do see a chance of a genuine output deal, they still need convincing that the proposed cuts will go far enough to address the supply imbalance.”

Goldman Sachs said in a report to clients on Tuesday that despite a production curb becoming a “greater possibility”, markets were unlikely to stabilize next year.

“Higher production from Libya, Nigeria and Iraq are reducing the odds of such a deal rebalancing the oil market in 2017,” the U.S. bank stated, and added that even if OPEC producers and Russia implemented strict reductions, higher prices would permit U.S. shale drillers to increase output. Adding to the rout on oil, the dollar .DXY rebounded to its highest in 11 weeks, lifted by advancing projections that the Federal Reserve could hike U.S. interest rates by the end of 2016.


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