Oil Prices Up But Uncertainty Over OPEC Deal Looms
March 28 2017 - 12:15AM
Dow Jones News
By Jenny W. Hsu
Crude futures clawed back some overnight losses in Asia Tuesday,
thanks to a weaker dollar but strong U.S. production and
uncertainty over the effectiveness of OPEC's production cut deal
will likely limit the gains.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in May traded at $47.97 a barrel at 0221 GMT, up $0.24
in the Globex electronic session. May Brent crude on London's ICE
Futures exchange rose $0.20 to $50.95 a barrel.
The greenback was last down 0.03% to 89.64 according to the WSJ
Dollar Index which pits the dollar against 16 currencies. As oil is
traded in the dollar, a weaker greenback means cheaper oil for
foreign traders. The decline in dollar reflects investors' doubts
over U.S. President Donald Trump's ability to deliver on his
pro-growth campaign promises, said Barnabas Gan, an economist at
Singapore bank OCBC.
Oil prices have been facing selling pressure lately as rising
crude production in the U.S. threatens to frustrate an ongoing
effort to reduce global crude stockpiles.
Analysts surveyed by S&P Global Platts estimate U.S. crude
stockpiles rose by 300,000 barrels in the week ended March 24. The
firm also expects gasoline and distillates stocks to show a
drawdown of 2.1 million barrels and 1.1 million barrels,
respectively. Official figures, including production rate, will be
released on Wednesday by the U.S. Energy Information
Administration.
"Even if U.S. crude oil stocks start to show a drawdown, other
aspects of the oil market, which have received less attention, show
the physical market is struggling in terms of rebalancing," the
firm warned.
Surging U.S. production comes at a time when the Organization of
the Petroleum Exporting Countries and 11 other producers are
cutting their output to pare down global inventories. The success
of the deal so far has garnered mixed reviews.
While some believe these producers should extend the cuts into
the second half of the year to reset the market back into a
balance, others say cutting more output gives U.S. shale oil
producers more impetus to ramp up their production.
Moreover, market watchers say a new gush of U.S. oil into the
market could entice OPEC members to forsake their pledges to curb
production.
"OPEC members are known for saying one thing and doing another,"
said Ben Le Brun, market analyst at Sydney's OptionsXpress. If OPEC
agrees to prolong the cut deal, "the cartel would essentially be
shooting themselves in the foot", he said.
The committee that monitors the deal will meet in late April to
present its recommendation on the fate of the pact. A final
decision will be taken by the oil cartel on May 25.
Oil investors are also watching the rising oil production and
exports out of Libya, an OPEC member exempted from the output cut
deal. Platts reported that Libya's National Oil Corp. on Sunday
shipped out its first crude oil cargo of around 1 million barrels
from the Es Sider oil terminal, a facility that recently resumed
operation after conflicts between the government and the insurgents
had forced it to shut-down.
Russia is another wild card that could thwart OPEC's plan to dry
out the market. Even though the world's biggest energy producer
agreed to cut its production by 300,000 barrels a day as part of
the deal, its energy minister Alexander Novak over the weekend
confirmed production has only declined by 185,000 barrels a day so
far, and will hit 200,000 barrels by the end of the month.
Nymex reformulated gasoline blendstock for April--the benchmark
gasoline contract--rose 2 points to $1.6191 a gallon, while April
diesel traded at $1.5032, 7 points higher.
ICE gas oil for April changed hands at $453.25 a metric ton, up
$2.00 from Monday's settlement.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
March 28, 2017 00:00 ET (04:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.