BLBG: Oil Nears Six-Week High on Speculation OPEC Will Cut Production
Crude oil climbed to near the highest in six weeks in New York on speculation the Organization of Petroleum Exporting Countries will decide to reduce output in an effort to trim stockpiles and lift prices.
OPEC should cut production to reduce the surplus in world markets, Iraqi Oil Minister Hussain al-Shahristani told journalists on March 7, the Wall Street Journal reported. The “dramatic drop” in oil prices has been greater than warranted by the decline in global demand, Venezuelan Finance Minister Ali Rodriguez said yesterday. OPEC meets in Vienna on March 15.
“My inclination is that they will” cut production, said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “With demand possibly softer than generally expected a few months ago, they may be caught in a situation where there’s downward pressure on prices again” if they don’t reduce output, he said.
Crude oil for April delivery rose as much as $1.24, or 2.7 percent, to $46.76 a barrel, the highest intra-day price since Jan. 27. It was at $46.42 at 12:11 p.m. in Singapore in after- hours electronic trading on the New York Mercantile Exchange.
The contract jumped 4.4 percent to $45.52 a barrel on March 6 after a worse-than-expected U.S. jobless report weakened the dollar and increased the investment appeal of commodities.
OPEC pumps about 40 percent of the world’s oil and has cut production three times since September to slow the slump in prices and prevent a glut on world markets. The group agreed mid- December on constraints that would cut supplies in January by 2.2 million barrels a day.
Not ‘Clear Cut’
Comments from member states show this week’s decision is “not as clear cut” and the big reductions have already been made, Commonwealth’s Moore said. “They certainly don’t have to cut as much as they did last time.”
New York futures gained 1.7 percent last week, with reports of declining U.S. stockpiles and rising gasoline demand offsetting a 10 percent plunge at the start of the week as U.S. equity markets slumped.
Nymex prices had been “artificially depressed” and last week’s gains only brought New York contracts back into line with more consistent Brent prices, Moore said.
Brent crude oil for April settlement rose as much as 83 cents, or 1.9 percent, to $45.68 a barrel on London’s ICE Futures Europe exchange. It was at $45.40 a barrel at 12:08 p.m. Singapore time. The contract rose 2.8 percent to $44.85 on March 6, trimming its loss for the week to 3.2 percent.
WTI Premium
West Texas Intermediate front-month oil futures on the New York Mercantile Exchange traded at a premium of 86 cents to the comparable Brent contract on the London-based ICE Futures Europe exchange today. The switch started on March 6.
WTI traded at a record discount of $10.67 to Brent in February and was last at a premium on Dec. 11.
The discount disappeared after stockpiles in Cushing, Oklahoma, the delivery point for WTI futures, declined for a third straight week, according to the U.S. Department of Energy. An oversupply of crude at Cushing had previously pushed WTI prices to record lows relative to Brent, raising concerns that the contract was being distorted as a price benchmark.
The April WTI contract is trading at a discount of $6.06 a barrel to the December future, a situation known as a contango, because of the excess supplies at Cushing. Declines in the Oklahoma inventories over the past three week’s reports have narrowed that gap from $8.38 a barrel a week ago.
“The Nymex forward curve in crude oil flattened last week to a near year-to-date low,” said Stephen Schork of the Schork Group Inc. said in a report today. “Per last week’s Energy Department report, crude oil supplies were well into the 90th percentile, but concerns in the futures regarding future supply are mounting.”
U.S. Supplies
Crude oil supplies in the U.S. fell 757,000 barrels to 350.6 million barrels in the week ended Feb. 27, the Energy Department said in a March 4 report.
The global economic outlook remains “extraordinarily weak” and it’s hard to see prices climbing strongly any time soon, Moore said. Prices may suffer if a trade report due March 11 in China, the world’s second-largest oil consumer, shows a decline in imports of crude and products, he said.
The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said yesterday. The Washington-based bank didn’t provide an estimate of the contraction.
