Oil fell sharply Friday night but can OPEC who meet this weekend turn it around? From Marketwatch:
Oil prices log a loss, snap weekly win streak as major producers prep for confab
Published: Oct 28, 2016 3:37 p.m. ET
Oil futures finished lower Friday and booked its first weekly loss since the middle of September, as uncertainty surrounded a weekend meeting of major oil producers who are expected to discuss a proposal to curb crude production.
December West Texas Intermediate crude settled down $1.02, or 2.1%, to $48.70 a barrel on the New York Mercantile Exchange. The U.S. benchmark finished down about 4.2% for the week—its first loss in six weeks, according to FactSet data. For the month, futures are up about 1%.
December Brent crude on London’s ICE Futures exchange fell 76 cents, or 1.5%, at $49.71 a barrel, with the global benchmark down 4% for the week.
This weekend, oil officials from members of the Organization of the Petroleum Exporting Countries are scheduled to meet in Vienna to discuss the production proposal. The discussions will be followed by another meeting between OPEC members and non-cartel producers.
OPEC is expected to make a formal announcement on Nov. 30 on the fate of the deal. If successfully ratified next month, it would be the first production cut agreement among oil producers in eight years.
As divisions within OPEC have “become more apparent, particularly with Iraq’s request for exemption earlier this week, the market has grown increasingly skeptical that the group can have a meaningful impact on supply,” said Robbie Fraser, commodity analyst at Schneider Electric.
On Thursday, Reuters reported that energy ministers from Persian Gulf members of OPEC, including Saudi Arabia, told Russia that they are willing to cut 4% from their peak oil output.
Oil prices initially jumped higher on the news that day, but pared gains as “OPEC’s ability to move prices on rhetoric alone begins to wear thin,” said Fraser.
Analysts have said that the longstanding feud between Saudi Arabia and Iran, various members’ requests to be exempted from the plan, and the past record of some countries not sticking to their production quotas in the past, all point to a wobbly foundation for a production cut pact.
Moreover, without a pledge from non-OPEC producers such as Russia to also limit production, OPEC producers would have less reason to curb their output. Russia has been in talks with OPEC but hasn't given firm answers on whether it will join the deal.
“A strong commitment to cutting production [among OPEC members] would suggest to the Russians that they could opt out of the proposed deal and still benefit from the higher prices that would result from [OPEC’s] reduction in supply,” said Tim Evans, a Citi Futures analyst, adding that Saudi Arabia is likely to insist that any deal to cut production must be consented to by all producers, including non-cartel countries, and not just a select few.
Part of the reason for reluctance to cut output is attributed to worries about growing production in the U.S. A weekly update on the number of active domestic rigs drilling for oil, which is a proxy for oil activity, will be released by Baker Hughes later Friday.
Even if a deal were to be forged in November, it could be a “watered down” version compared with the original proposal of curbing the group’s production by 200,000 to 700,000 barrels a day, said BMI Research.
For example, all parties could end up agreeing to freeze their production at their peak output level instead of scaling back, with the exceptions of Libya, Nigeria, and Iran, who could be allowed to ramp up until they reach their normal production levels.
“In addition, in the case of an agreement, we expect it to be temporary, perhaps lasting six months in time to increase production for the 2017 summer demand season,” the firm added.
November heating oil lost 2.79 cents, or 1.8%, at $1.5422 a gallon, logging a 2% weekly decline.
December natural gas on its first full day as a front-month contract, traded at $3.1050 per million British thermal units, fell 3.7 cents, or 1.2%. For the week, the December contract ended 7.6% lower.
—Mark DeCambre contributed to this article
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