Sun, Oct 02, 2016 - Page 14 News List

Oil posts monthly advance on OPEC pact to cut output


Tarjin JSC operates a drill rig in an oilfied near Ufa, Russia, on Thursday.

Photo: Bloomberg

Oil prices advanced, adding to the biggest monthly gain in five months, after OPEC on Wednesday agreed to its first output cut in eight years on Wednesday.

Futures climbed 0.9 percent in New York as equities rose and the US dollar retreated against its peers, bolstering the appeal of commodities.

Crude surged 7.9 percent this month, providing the first September increase since 2010. Oil surged the most in more than five months after the announcement of the deal, which will see the OPEC reduce production to a range of 32.5 million to 33 million barrels a day.

“This has been a momentous week,” said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. “OPEC has gotten some reward for this nascent effort at coming together.”

The agreement caught the market by surprise after prior signals from Saudi Arabia and Iran that an accord was unlikely. OPEC now faces the challenge of implementing the cuts, with Goldman Sachs Group Inc and Morgan Stanley expressing skepticism that the deal can be completed.

Nigeria, Iran and Libya have said they are exempt from an agreement, while Iraq has said it does not accept OPEC’s estimates of its production levels.

West Texas Intermediate (WTI) for delivery next month rose US$0.41 to settle at US$48.24 a barrel on the New York Mercantile Exchange. Prices climbed 8.5 percent this week and slipped 0.2 percent this quarter. Total volume traded was 13 percent below the 100-day average at 2:36pm.

Brent for November settlement, which expired on Friday, dropped US$0.18 to US$49.06 a barrel on the London-based ICE Futures Europe exchange, closing at an US$0.82 premium to WTI.

The more active December contract increased US$0.38 to US$50.19. The North sea crude rose 4.3 percent this month and fell 1.2 percent this quarter.

While Saudi Arabia lowered output this month — following the typical seasonal shift as local consumption sags at the end of summer — the group’s overall output remained steady, as Nigeria and Libya restored disrupted supplies and Iran continued its return from international sanctions, according data from Vienna-based consultants JBC Energy GmbH showed.

Russia is sticking with an assumption that oil will average US$40 a barrel in the next three years and will not revise its budget outlook after the OPEC agreement, Russian Minister of Finance Anton Siluanov said.

“They have a lot of wood to chop,” Kilduff said. “The Iraqis are mad and probably won’t take part in any cut, and the Russians are sounding lukewarm at best. It’s only a matter of time before this falls apart.”

Oil will need to hold above US$50 a barrel for months before US companies commit to more spending, according to analysts at firms including S&P Global Platts and Oppenheimer & Co.

The number of rigs targeting oil in the US climbed to 425 this week, the highest level since February, Baker Hughes Inc data showed.

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