September 22, 2017
Oil traders couldn’t make up their mind 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, switching between small gains and losses. 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. At the same time, he said some of the countries participating in the cuts have room to improve compliance with the caps they signed up for. 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 million barrels a day.
West Texas Intermediate for November delivery fell 3 cents to $50.52 a barrel at 12:18 p.m. on the New York Mercantile Exchange. Total volume traded was about 39 percent below the 100-day average. Prices are on track for a 1.2 percent weekly advance.
Brent for November settlement added 21 cents to $56.64 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $6.13 to WTI.
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Brent futures for near-term delivery are trading at a marked premium to longer-term contracts, a pattern known as backwardation that shows demand is exceeding supplies.
Oil inventories in developed economies have dropped by 170 million barrels 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 the group to maintain focus and fully implement agreed curbs.
“People are kind of scratching their heads right now about whether or not the backwardation in Brent really means the global markets are moving to an under-supplied scenario,” Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC in New York.
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 million new barrels in daily U.S. production, and the error is “distorting” global crude prices.