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Oil Prices Rise on Supply Hopes

Producers’ output cuts raise confidence balance will be restored

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Written by Alison Sider & Sarah McFarlane at The Wall Street Journal
Click HERE to Read the Article by the Publisher.


screen-shot-2016-12-15-at-2-00-46-pmOil prices edged up amid hopes that a move by OPEC and other major producers to cut output could help bring crude supply and demand into balance more quickly.

Crude for January delivery advanced 15 cents, or 0.3%, to $52.98 a barrel on the New York Mercantile Exchange, for the fourth successive day of gains. Brent, the global benchmark, rose three cents, or 0.05%, to $55.72 on London’s ICE Futures Exchange, also for the fourth day in a row.

If members of the Organization of the Petroleum Exporting Countries and non-OPEC nations follow through on promises to cut production for the next six months, the market likely will become undersupplied by the first half of next year, the International Energy Agency’s monthly oil report said.

“For the most part the market is kind of consolidating,” said Ric Navy, senior vice president for energy futures at RJ O’Brien & Associates. “Bullish sentiment is still out there. I don’t think there is any reason to think it is all topped out yet.”
Oil prices wavered during the day—the IEA report also showed global oil supplies increased in November to 98.2 million barrels a day as rising OPEC output outweighed a drop in non-OPEC production. OPEC’s production rose 300,000 barrels a day last month to a record, even as members were negotiating pledges to cut back. Even Saudi Arabia, which drove the agreement to cut output, produced more, the agency said.

OPEC would now have to cut 1.7 million barrels a day to reach its target ceiling of 32.5 million barrels a day, more than the 1.2 million-barrel-a-day cut it initially envisioned.

“There were definitely some bearish nuggets in there that threw cold water on a superheated OPEC story,” said Bob Yawger, director of the futures division of Mizuho Securities USA.

The market got a shot of confidence this week after a deal struck over the weekend formalized the cooperation of countries outside of OPEC. Countries including Russia agreed to cut output by a combined 558,000 barrels a day. Reports that Saudi Arabia would be willing to take a deeper cut than the 486,000 barrel-a-day reduction it agreed to in November also boosted crude prices.bn-re712_1213cm_p_20161212231037

But members of the 14-member group have a spotty record for adhering to production quotas, causing some doubt over whether the cuts will fully materialize. Removing excess barrels will lift prices, possibly into the target range of $60 to $70 a barrel, but it would mostly hinge on the compliance of the producers who have been known to cheat, BMI Research said.

“We note that the higher the barrel price, the greater the temptation to break allocated quotas,” the firm said.

Higher prices could also lure U.S. shale producers to ramp up their own output, potentially undermining the benefits of the OPEC deal. The U.S. Energy Information Administration said Monday U.S. shale production is likely to increase in January.

“It’s going to get tougher for the market to gobble up as much ground as it did yesterday,” said Gene McGillian, research manager at Tradition Energy. “The market could show continued strength—it is just that as it attempts to push through yesterday’s high, there will be greater resistance until we see signs that there is no cheating,” or that U.S. producers aren’t rushing back in.

Market participants are also looking ahead to the EIA’s weekly report on U.S. stockpiles, which will be released Wednesday. Analysts surveyed by The Wall Street Journal expect the EIA to report that crude stocks fell by 1.7 million barrels during the week ended Dec. 9. Last week’s report showed that oil inventories fell overall, but supplies at the Cushing, Okla., storage hub surged by 3.8 million barrels, the largest weekly increase since 2009.

The American Petroleum Institute, an industry group, said late Tuesday its data for the week showed a 4.7 million-barrel increase in crude supplies, a 3.9 million-barrel rise in gasoline stocks and a 230,000-barrel increase in distillate inventories, according to a market participant.

Gasoline futures rose 0.77 cent, or 0.5%, to $1.5507 a gallon. Diesel futures rose 0.3 cent, or 0.2%, to $1.6747 a gallon.


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Written by Alison Sider & Sarah McFarlane at The Wall Street Journal
Click HERE to Read the Article by the Publisher.

 

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