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Oil Prices Pare Gains Amid Investor Skepticism Over Production Agreement

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Written by: GEORGI KANTCHEV and NEANDA SALVATERRA

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Oil prices pared gains Monday as investors remained skeptical that major producers can agree on measures to counter the persistent glut on the market.

Prices rallied more than 5% earlier after Saudi Arabia and Russia agreed to cooperate to stabilize the oil market. The two heavyweight producers, however, stopped short of outlining any limit on their petroleum output.

Brent crude, the global oil benchmark, rose 1.5% to $47.53 a barrel on London’s ICE Futures exchange after hitting a high of $49.33 a barrel earlier in the session. West Texas Intermediate futures, the U.S. crude benchmark, traded 1.8% higher at $44.24 a barrel.

Coming ahead of a meeting between major oil producers later this month, the Saudi-Russian talks fueled hopes that the producers will agree to limit their output amid concerns about the persistent glut in the market

Speaking at the G-20 summit in China on Monday, the oil ministers from the world’s two largest producers said they would form a working group to monitor the market and would have regular meetings. Saudi energy minister Khalid al-Falih called the agreement a “major step” to stabilizing prices. Russian energy minister Alexander Novak said he hopes that other producers will cooperate to achieve stability in the oil market.

But later, in an interview with Al Arabiya, Mr. Falih said an output freeze wasn’t needed at this time. It is a “favorable option, but not necessary today,” he said in the interview.

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Many analysts remain skeptical of the chances of a production freeze given that the Organization of the Petroleum Exporting Countries has failed in the past to reach such a pact due to objections from Iran.

“It’s a political statement so it’s still vague,” Olivier Jakob, managing director of Petromatrix, a consultancy based in Switzerland, said on the Saudi-Russian statement on Monday.

“The working group has been talked about before. I don’t think that it shows that there is a true mechanism for supply action yet,” he said.

OPEC is scheduled to officially meet in November but producers from the organization will hold informal talks later this month at an industry conference in Algiers. Russia is also expected to attend those meetings.

Iran’s return to the global markets and Saudi Arabia’s fight for market share have been major stumbling blocks to reaching a freeze agreement.

On Saturday, Iran’s state-owned Shana news agency reported the Deputy Petroleum Minister Amir Hossein Zamaninia as saying that Iran would support any decision to restore balance in the oil market once its market share reaches the presanction level.

“The major players will sit down and talk in Algiers but an agreement on a freeze is doubtful given Saudi’s insistence on Iran participating in such a deal,” said Abhishek Deshpande, oil analyst at French bank Natixis.

In the absence of a freeze, the bank sees oil prices remaining under $50 a barrel for the rest of this year and becoming bullish toward the end of 2017.

Nymex reformulated gasoline blendstock–the benchmark gasoline contract—rose 1.6% to $1.32 a gallon. ICE gas oil changed hands at $415 a metric ton, up $5.50 from the previous settlement.


TAGS: Oil, Gas, Crude, OPEC


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Written by: GEORGI KANTCHEV and NEANDA SALVATERRA

Click HERE to Read Article From Publisher

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