Oil's OPEC Rally Reaches New Highs
23 May 2017 - 8:42PM
Dow Jones News
By Timothy Puko
Oil prices rose to fresh one-month highs Tuesday, extending a
winning streak to five sessions on optimism that the coming OPEC
meeting will result in more production cuts.
Gains Tuesday were the 11th in 13 sessions, one of several
recent, lengthy rallies largely tied to the Organization of the
Petroleum Exporting Countries. Falling stockpiles this month in the
U.S. have some convinced that cuts from the group of global
exporters are impacting supply, and U.S. crude prices are up 13%
since they hit a six-month low May 4.
U.S. crude for July delivery recently gained 13 cents, or 0.3%,
to $51.26 a barrel on the New York Mercantile Exchange. Brent, the
global benchmark, gained 9 cents, or 0.2%, to $53.96 a barrel on
ICE Futures Europe.
"It's primarily OPEC as far as I'm concerned," said Bart Melek,
head of commodity strategy at TD Securities in Toronto.
Saudi Energy Minister Khalid al-Falih said early Tuesday that
Iraq had given the "green light" to a proposal for a nine-month
extension that would be presented to OPEC's meeting in Vienna on
Thursday. Iraq had become a potential obstacle to OPEC's efforts to
continue cutting output into next year, representatives of the
cartel said Monday, prompting Saudi Arabia's energy minister to fly
to Baghdad for meetings.
Now Mr. al-Falih said he did not expect any opposition within
OPEC to extending the cuts, speaking after he met his Iraqi
counterpart in Baghdad. It follows the pattern of recent weeks of
several countries speaking out in favor of an extension, including
Russia, one of the world's biggest exporters and the largest
participating country from outside of OPEC.
"You kind of know what's out there: Nine-month extension and
everybody's in," said Michael Hiley, a trader at LPS Futures
LLC.
Late last year OPEC and other major producers including Russia
agreed to cut output by 1.8 million barrels a day for the first
half of 2017 in a bid to bring down stocks. Thursday's meeting is
expected to yield an extension to the deal of up to nine
months.
"OPEC were saying they want to bring down inventories and it
hasn't happened yet which is why we expect an extension," said
Giovanni Staunovo, analyst at UBS.
One potential hurdle to OPEC reaching consensus is agreeing on
the length of the extension, with some members preferring six
months. Saudi Arabia's oil minister Khalid al-Falih is in favor of
a nine-month extension.
Either way, analysts said that a cut has been priced into the
market. And there is a chance that OPEC leaders could announce
further cuts on top of that, surprising the markets and
accelerating the rally, Peter Cardillo, chief market economist at
First Standard Financial in New York, said in a note.
"OPEC needs to convince the markets that it means business and
is back in control," he said.
Oil prices briefly fell to losses in predawn trading after news
the U.S. plans to sell some of its strategic reserves. But analysts
said that will ultimately be only a small addition of supply into
the market, and may not even happen soon because of how long it is
likely to take to pass the plan through Congress.
Gasoline futures lost 0.12 cent, or 0.1%, to $1.6614 a gallon,
snapping a three-session winning streak.
Diesel futures are on their longest winning streak since 2010.
They gained 0.46 cent, or 0.3%, to $1.6067 a gallon, a
10th-straight winning session. It is at its highest settlement
since April 18.
Sarah McFarlane, Riva Gold, Summer Said and Benoit Faucon
contributed to this article.
Write to Timothy Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
May 23, 2017 15:27 ET (19:27 GMT)
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