Oil Prices Drop as Chances Fade for Output Cuts -- Update
By Timothy Puko and Miriam Malek
Oil prices gave back a big chunk of last week's gains, with
traders losing hope that the world's big producers will cut their
output and that Asia's economies can help drive demand.
The market had shot to a three-week high late last week on
speculation of increasing economic stimulus, and cooperation on
output cuts between Russia and OPEC.
But many leaders of the Organization of the Petroleum Exporting
Countries are actively damping expectations for cuts. New data also
suggests U.S. output is still resilient and the Chinese
manufacturing sector is still contracting. Many of the factors that
sent oil on a historic plummet over the past 19 months haven't
changed, analysts said on Monday.
"We are now getting a dose of reality," said Scott Shelton,
broker at ICAP PLC.
Light, sweet crude for March delivery settled down $2, or 6%, at
$31.62 a barrel on the New York Mercantile Exchange. It is the
largest daily dollar loss since Jan. 6 and snaps a four-session
winning streak. Front-month April Brent crude, the global
benchmark, settled down $1.75, or 4.9%, at $34.24 a barrel on ICE
As early as last week, senior OPEC officials were rebutting
claims from Russia about cooperation on output cuts. Iran also said
Friday it "won't consider a cut" until its exports have increased
by 1.5 million barrels a day over current levels of roughly 1.1
million barrels a day. The International Energy Agency predicts the
country will export an extra 300,000 barrels by the end of this
year now that international economic sanctions against it have
For oil prices to break higher, these exporters would have to
confirm a deal, said Olivier Jakob, an analyst at Switzerland-based
"We continue to view a coordinated production cut as highly
unlikely and ultimately self-defeating," Goldman Sachs analysts
said in a note issued late Sunday. "Prices need to remain low
enough to force fundamentals to create the adjustment back toward a
That will likely keep oil between $20 and $40 a barrel until the
second half of the year, the analysts said. They expect oil prices
to be highly volatile and without a clear trend until then.
Saudi Arabia hasn't wavered from leading a group of OPEC's most
powerful members to keep producing at full tilt and defend their
market share amid competition from Russia, the U.S. and other
non-OPEC producers. Russian production also hit post-Soviet records
last year. And U.S. government data from late Friday showed the
country's production in November was still up 1.3% from the year
before, inching down just 0.6% for the month at 9.3 million barrels
Without cooperation on cutbacks, several of the world's largest
oil producers are likely on their way to deeper problems. Nigeria
and Azerbaijan have already approached the International Monetary
Fund for a bailout, with low prices pummeling their oil-dependent
"At lower prices, we can expect more bottom picking, providing
temporary support to prices, but it will be really difficult for a
lot of producers to cope at $26 or less," Mr. Jakob said.
Lackluster Chinese manufacturing data was also damping prices.
China's statistics bureau reported Monday that the official
manufacturing purchasing managers index fell to 49.4 in January
from 49.7 in December, marking the lowest level since August 2012
and the sixth straight month of contraction.
China's continuing slowdown has weighed on global oil demand.
Last month, China said the country's economy grew 6.9% in 2015, the
slowest pace in 25 years.
"This weak data would likely remind the market of bearishness
again, suggesting more drops for the market in the week ahead,"
said Phillip Futures analyst Daniel Ang.
However, some analysts say China's crude imports could grow
around 7% this year driven by demand from local refiners and as the
government stocks up its strategic reserves. Crude demand from
China grew by 8.8% in 2015.
Gasoline futures settled down 4.93 cents, or 4.4%, at $1.083 a
gallon. Diesel futures fell 4.22 cents, or 3.9%, to $1.0365 a
Jenny W. Hsu
contributed to this article.
Write to Timothy Puko at firstname.lastname@example.org and Miriam Malik at
(END) Dow Jones Newswires
February 01, 2016 15:39 ET (20:39 GMT)
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