Sun, Jan 15, 2017 - Page 14 News List

Oil caps worst week since November as OPEC cuts eyed


A worker prepares to operate valves in the Nihran Bin Omar oil field north of Basra, 550km southeast of Baghdad, Iraq, on Thursday last week.

Photo: AP

Oil posted the biggest weekly decline since November last year as traders await proof that OPEC and other producers are following through on promises to cut production.

Futures declined 1.2 percent in New York on Friday and slid 3 percent this week.

Saudi Arabia reduced output to less than 10 million barrels a day and will consider renewing its pledge to trim supply in six months, Saudi Arabian Minister of Energy Khalid al-Falih said.

Still, until monthly production data is released, “these claims cannot be verified,” Commerzbank AG said.

The United Arab Emirates does not intend to reduce output more than was agreed upon with OPEC in November last year and a tanker is said to sail to Libya’s Zawiya port to load Sharara crude.

Oil has advanced since the deal among OPEC members and 11 other nations to temper global supply. It has been unable to sustain its rally above US$55 amid concern that rising prices will spur more production.

While Middle East producers, including Saudi Arabia, have signaled they are sticking to the pledged reductions, the US on Tuesday last week raised this year’s output forecast.

“We’re seeing strong compliance from the usual suspects, the Saudis and their Gulf counterparts,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone.

However, US output rose by 176,000 barrels a day last week and “the exempted countries are going gangbusters in production and exports,” he said.

On Friday, West Texas Intermediate (WTI) for February delivery slid US$0.64 to settle at US$52.37 a barrel on the New York Mercantile Exchange. The contract is down 3 percent from last week’s US$53.99 per barrel.

Total volume traded was about 11 percent below the 100-day average.

Brent for March settlement dropped US$0.56 to end the session at US$55.45 on the London-based ICE Futures Europe exchange. The contract fell 2.9 percent from last week’s US$57.10.

The global benchmark was at a premium of US$2.30 to March WTI.

Explorers reduced US rigs searching for oil for the first time since October last year, after expanding to the highest level in a year the previous week. The increase has helped fuel a rebound in US oil production, which rose to the highest level since April last year.

The OPEC supply deal has only been in effect for two weeks, and the group is to adopt compliance mechanisms at a meeting in Vienna on Sunday next week, OPEC Secretary-General Mohammad Barkindo said in a Bloomberg Television interview in Abu Dhabi on Friday.

The caps on supply, together with rising demand and natural decreases in output in some countries, will help balance the market and support prices, al-Falih said at an energy conference in Abu Dhabi on Thursday.

The last time Saudi production came in below 10 million barrels a day was in February 2015, according to data compiled by Bloomberg.

“The markets are trying to get a sense of what sort of compliance we will get,” Abhishek Deshpande, chief energy analyst at Natixis SA in London, said by telephone.

Producers are seeing that oil prices have not climbed to US$60 yet “and if they want that, they must provide the market with confidence,” Deshpande said.

Oil market news:

‧ Kazakhstan might not be able to extend its commitment to helping OPEC curb global oil supply into the second half, because its giant new field would accelerate production.

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