Oil Prices Lower on Iran Comments, U.S. Crude Stocks Growth
September 27 2016 - 12:34AM
Dow Jones News
By Jenny W. Hsu
Crude oil prices lost steam in early Asian trade Tuesday after
Iran played down expectations for an oil-production deal, calling
the oil producers meeting on Wednesday "consultative", reinforcing
views that major producers will walk away from the negotiations
without a pact.
Iran's comment, although not unexpected, doused much of the hope
that members of the Organization of the Petroleum Exporting
Countries and other heavyweight producers such as Russia, would
clinch an agreement tomorrow to abate production in order to lift
prices.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in November traded at $45.83 a barrel at 0325 GMT,
down $0.10 in the Globex electronic session. November Brent crude
on London's ICE Futures exchange fell $0.16 to $47.19 a barrel.
Since mid-2014, oil prices have grappled with the persistent
issue of oversupply as big OPEC players such as Saudi Arabia have
taken a "market-share first" strategy to defend their turf against
the U.S. shale boom. The lower margins on account of the lower oil
prices has led several oil producers to drop out or scale back
their investments. In 2015, global investments in oil and gas
fields fell by 25%, and is set to slide by a further 24% this year,
according to Paris-based energy watchdog International Energy
Agency.
Analysts say the longstanding political rivalry between Saudi
Arabia and Iran remains a core hindrance to any potential deal at
Algeria. "There is really no hope of any agreement when Iran and
Saudi Arabia don't agree," said Alan Oster, chief economist at
National Australia Bank.
Saudi Arabia has stated it would support a production freeze,
only if all players are committed to the plan and if Iran caps its
future production at its current daily output of 3.6 million
barrels, according to people familiar with the kingdom's proposal.
However, Iran has reiterated its goal to keep pumping until output
hits the presanction levels of 4.2 million barrels a day.
Even if a deal were reached, oversupply in global oil markets
would persist as countries like Nigeria and Venezuela are
aggressively ramping up production to make up for losses suffered
by them in recent months due to internal strife.
"Freezing output at current levels would do little to balance
the market given that the majority of OPEC members are producing at
or around their peak capacity," said BMI Research.
Moreover, any artificial effort to lift oil price prematurely
will be counterproductive over the medium term, a risk that OPEC is
keenly aware of, said Morgan Stanley, predicting an agreement to
cut production may only come out of "severe budget stress or belief
that long term supply has already overcorrected on capex cuts."
Stronger-than-expected resilience by U.S. shale producers is
adding to the bearishness. Although Nymex prices have failed to
break above $50 since the end of June, U.S. oil drillers have been
steadily returning to the oil patches. In the week ended September
16, the total active oil rigs in the U.S. rose to 418, based on
data provided by industry group Baker Hughes.
Investors will be monitoring the weekly U.S. crude stock report
due Wednesday for cues. A survey by S&P Global Platts shows
U.S. crude inventories rose 3.2 million barrels last week while
gasoline stocks remained unchanged.
Nymex reformulated gasoline blendstock for October--the
benchmark gasoline contract--fell 29 points to $1.3995 a gallon,
while October diesel traded at $1.4454, 36 points lower.
ICE gasoil for October changed hands at $423.00 a metric ton,
down $2.75 from Monday's settlement.
Benoit Faucon, Georgi Kantchev, Summer Said contributed to this
article.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
September 27, 2016 00:19 ET (04:19 GMT)
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