Oil Futures Rise on Expectations for OPEC Meeting Next Week -- 2nd Update
21 November 2016 - 11:07AM
Dow Jones News
By Kevin Baxter
Oil prices gained Monday as more positive sentiment emanating
from OPEC regarding proposed production cuts seeped into the market
over the weekend.
January deliveries of global crude benchmark Brent were up 1.32%
at $47.49 a barrel while its U.S. counterpart West Texas
Intermediate gained 1.18% to $46.24.
Prices were buoyed by news that the energy ministers from two of
the Organization of the Petroleum Exporting Countries' most
reluctant members in terms of cutting output, Iraq and Iran, were
backing the proposal. The cartel meets Nov. 30 when it will
formally decide on strategy for the first half of 2017.
Most observers have welcomed the comments, but many have warned
that nothing other than vague statements backing the cuts had been
said.
OPEC now faces a difficult choice at the meeting regarding
output cuts, with neither outcome being particularly beneficial to
the cartel, according to London-based Barclays bank. In a note,
analysts stated that cutting production would give prices a
short-term boost, but it would be U.S. producers that reaped the
benefit in the mid-term, by using the fillip to lock-in higher
prices for future production.
It added that a hands-off approach would allow the market to
balance naturally and keep many U.S. producers at bay for the time
being, but would also hurt financially.
"We still expect OPEC to agree to a face-saving statement. It
would showcase agreement, provide flexibility, and not veer too far
from what countries had planned initially for [the first half of
2017]," said Barclays.
The New York-based Morgan Stanley said that any OPEC deal would
almost certainly prompt some short-covering, a market term for
buying back a commodities contract for a lower price than it was
sold, which could then kick-start a rally. It added that at current
prices, the downside risk for OPEC not agreeing to cuts is limited
as a "fair amount of skepticism" has already been priced in.
Meanwhile, the U.S. oil trading window is only three days this
week due to the Thanksgiving holiday on Thursday and Friday. This
means that global trading activity in WTI will be lower, which
could lead to some volatility over the final two days of the week,
especially if there are major announcements from OPEC.
Nymex reformulated gasoline blendstock futures--the benchmark
gasoline contract--fell 1.41% to $1.36 a gallon, while December
diesel traded at $1.48, up 1.2%.
ICE gasoil futures changed hands at $432.50 a metric ton, up
2%.
Write to Kevin Baxter at Kevin.Baxter@wsj.com
(END) Dow Jones Newswires
November 21, 2016 05:52 ET (10:52 GMT)
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