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Oil Falls Second Day Amid Doubts OPEC Members Will Reduce Output

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Written by: Mark Shenk at Bloomberg

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Oil dropped a second day on speculation the OPEC agreement to trim crude output won’t succeed in reducing supply.

Futures declined 1.2 percent in New York. Crude has climbed since the Organization of Petroleum Exporting Countries agreed on Sept. 28 to have a new output range of 32.5 million to 33 million barrels a day. OPEC Secretary-General Mohammed Barkindo said Wednesday that talks with Russia on output curbs have been “very constructive.” Oil declines accelerated as the dollar rose to the highest in seven months against its peers.


Oil rose to a 15-month high Monday after Saudi Arabia expressed optimism that a deal could be finalized to cut output and Russia signaled support. While Saudi Arabia’s oil minister left Istanbul before a producer meeting Wednesday, Barkindo said most of the work on an accord was already done and countries including Russia, Azerbaijan, Algeria and Venezuela will still meet to “compare notes.” OPEC supply quotas will be decided at the group’s official gathering late next month in Vienna.

“We pushed solidly above $50 on the OPEC agreement and are now refocusing on whether they will actually follow through with actual cuts,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. “Any gains will be tempered until there’s evidence they are honoring their production cuts. We need to see signs that the fundamental picture is falling before making new highs.”

Dollar Rally

West Texas Intermediate for November delivery fell 61 cents to $50.18 a barrel on the New York Mercantile Exchange. Futures settled at $51.35 on Monday, the highest close since July 2015.

Futures were little changed from the settlement after the industry-funded American Petroleum Institute was said to report U.S. crude supplies rose by 2.7 million barrels last week. November WTI traded at $50.16 at 4:39 p.m. in New York.

Brent for December settlement dropped 60 cents, or 1.1 percent, to $51.81 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $1.17 premium to December WTI.

The dollar rose against most major currencies as the likelihood of a U.S. interest-rate hike by year-end climbed to 67 percent, from 60 percent a month ago. A stronger U.S. currency reduces the appeal of dollar-denominated raw materials as an investment. The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose as much as 0.4 percent to the highest level since March.

OPEC Obstacles

The scale of the internal obstacles OPEC must resolve was revealed Wednesday as the group’s latest output estimates showed a half-million-barrel difference of opinion over how much two key members are pumping.

“The market continues to rebalance,” said Cavan Yie, senior equity analyst at Manulife Asset Management Ltd. in Toronto. “Now you potentially have a functioning cartel, which is good for prices. We had a non-functioning one, which led to a free-for-all that was bad for prices.”

Russia’s two largest oil producers said Tuesday they would comply with any government instruction to limit production, after President Vladimir Putin had earlier said his nation would back a deal with OPEC. An output freeze or cut is probably the only proper move to preserve stability in the global energy market, Putin said Monday at the World Energy Congress in Istanbul.

OPEC’s effort to secure cooperation of non-members in a global deal to curb crude output will now move to Vienna, with Russia on board but with growing internal differences over sharing the burden of cuts. Russia is ready to participate in a “technical exchange” to set a road map for oil production levels in the Austrian capital later this month, Energy Minister Alexander Novak told reporters Wednesday.

Written by: Mark Shenk at Bloomberg

Click HERE to Read Article From Publisher