Oil Prices Fall After Iraq Signals Doubts Over OPEC Cut
25 October 2016 - 7:28AM
Dow Jones News
By Sarah McFarlane and Jenny W. Hsu
Oil prices tumbled Monday amid doubts over OPEC's proposed
output cut, after Iraq signaled it wants to be excluded from the
pact.
Light, sweet crude for December delivery settled down 33 cents,
or 0.6%, at $50.52 a barrel on the New York Mercantile Exchange.
U.S. oil nearly fell as low as $49.62 a barrel before a rebound
throughout the afternoon. Brent, the global benchmark, fell 32
cents, or 0.6%, to $51.46 a barrel.
Iraqi oil officials Sunday were reported to have said they
wouldn't scale back output, which currently stands at 4.77 million
barrels a day. Iraq is the second largest Organization of the
Petroleum Exporting Countries producer after Saudi Arabia, making
its commitment to any cut to OPEC's oil output key.
"This shift by OPEC's second-largest producer could become a
deal breaker," said Tim Evans, analyst at Citi Futures Perspective
in New York.
Enterprise Products Partners also announced Monday a leak led it
to shutter its Seaway Pipeline, which can carry 400,000 barrels a
day to the Gulf Coast from the Cushing, Okla., hub for U.S. oil.
That had some concerned about oil supplies backing up and initially
caused U.S. prices to fall much further than international
prices.
But the market pared those losses throughout the day, a further
sign that many bullish traders are eager to jump in and bet the
market is ending a long period of oversupply, said Scott Shelton,
broker at ICAP PLC. OPEC members are scheduled to meet Nov. 30 to
discuss limiting the group's production under 33 million barrels a
day, which already had helped the market rally 30% in less than
three months.
Skeptics are also still active, though, and the market has given
back 2.1% since hitting a new one-year high last week. Many are
bracing for the OPEC deal to flop given the members' record of not
complying with quotas.
"There is a risk that Iraq's refusal could trigger a domino
effect that other producers would ask to be exempt from the cuts
too," said Gao Jian, an energy analyst at SCI International.
OPEC members Iran, Libya and Nigeria already expected to be
exempt from the deal, while nonmember Russia is also looking
unlikely to join any action to curb production.
"If they do nothing, OPEC production next year is likely to
average at least 34 mbpd (million barrels a day) with a real threat
of it reaching close to 35 mbpd if the chaos in Libya and Nigeria
were to be resolved," brokerage PVM said.
Oil prices are also under pressure as the number of active oil
rigs in the U.S. continue to climb. Last week, the oil-rig count
rose by 11 to 443, according to oil-field services company Baker
Hughes Inc.
The U.S. oil-rig count is typically viewed as a proxy for
activity in the sector. After peaking at 1,609 in October 2014, low
oil prices put downward pressure on production and the rig count
fell sharply. The oil-rig count has generally been rising since the
beginning of the summer and the uptrend is likely to continue,
Morgan Stanley said in a note.
"Rig count typically lags prices by three to four months, so we
would expect to see more rigs added, especially near year-end," the
bank said.
China's crude oil imports surged 18% in September, while
gasoline exports rose 37% and diesel exports were up 44% versus the
same period a year ago. Independent refiners in China have emerged
as an important force in oil markets this year. They accounted for
the vast majority of the 14% surge in imports this year by China,
which now rivals the U.S. as world's largest crude importer.
Political developments in Venezuela are being monitored after
the congress announced they would begin impeachment proceedings
against President Nicolás Maduro. The country's oil-dependent
economy has been hit hard by the prolonged collapse in crude price.
Its oil production in the 12 months to September declined 11% to
2.3 million barrels and the economy is expected to contract by at
least 10% this year.
Gasoline futures lost 2.76 cents, or 1.8%, to $1.5038, its
largest daily decline since Sept. 20. Diesel futures gained 0.58
cent, or 0.4%, to $1.5798 a gallon, its fourth gain in five
sessions.
Timothy Puko and Alison Sider contributed to this article
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com and Jenny W.
Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
October 24, 2016 16:13 ET (20:13 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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