Brent Rises From Six-Year Low as OPEC Meeting Looms, Euro Surges

Saudi Arabia Under Pressure to Cut Oil Output
  • Commodities rally as euro gains most versus dollar since 2009
  • Saudi Arabia denies report it may propose production cut

Oil rebounded from the lowest price in more than six years in London as the Organization of Petroleum Exporting Countries prepares to meet. Gains accelerated as the euro rose the most against the dollar since 2009.

OPEC members clashed over oil output policy at an unusual informal gathering before the group’s official meeting in Vienna on Friday. Saudi Arabia held its line on Thursday, insisting other big producers outside the group such as Russia would have to join any cuts, according to a person with knowledge of the discussions. A report that Saudi Arabia may propose an output reduction is “baseless,” a Saudi official said.

"We aren’t swimming in oil, we’re drowning in it," Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone. "There were reports that the Saudis would agree to a cut but they were quickly denied. We’ll have to wait and see what happens tomorrow but I’m not holding my breath in anticipation of any change."

Market Share

Futures have tumbled about 40 percent since Saudi Arabia led the group’s decision last year to defend market share. The global surplus is growing after data showed U.S. crude supplies rose to the highest level for this time of year since 1930 and as Russia pumps near record levels. OPEC remains divided over how to stabilize the oil market and needs a consensus among all members before it can change its output target.

Brent for January settlement climbed $1.35, or 3.2 percent, to end the session at $43.84 a barrel on the London-based ICE Futures Europe exchange, its biggest gain in a month. The contract slid 4.4 percent to $42.49 on Wednesday, the lowest close since March 2009. Total volume was 16 percent above the 100-day average at 2:53 p.m. in New York.

West Texas Intermediate for January delivery rose $1.14, or 2.9 percent, to settle at $41.08 a barrel on the New York Mercantile Exchange. It dropped 4.6 percent to $39.94 on Wednesday, the lowest close since Aug. 26. The U.S. benchmark crude closed at a $2.76 discount to Brent.

Dollar Tumbles

The dollar tumbled against the euro, helping spur a broad commodity rally after the scale of the European Central Bank’s stimulus measures disappointed investors. The Bloomberg commodity Index of 22 raw materials gained as much as 1.6 percent after sinking Monday to the lowest since 1999.

"The only thing that can explain this move is the pounding that the dollar has taken," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone.

Saudi Arabia, OPEC’s biggest producer, may propose a group output cut of 1 million barrels a day that may take effect in 2016, Energy Intelligence said Thursday, citing a delegate it didn’t identify. Such a cut would be conditional on the participation of non-OPEC producers including Russia, Mexico and Kazakhstan and wouldn’t be agreed on Friday, according to the report.

Nothing Changes

"OPEC has found it hard to cooperate in cutting quotas over the last 20 years, especially without Russia and others taking part," Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $128 billion of assets, said by phone. "I expect that nothing changes tomorrow."

Iran, which pumped 2.8 million barrels a day last month, according to a Bloomberg survey, plans to boost supply by 500,000 barrels a day within weeks of sanctions being lifted and by 1 million barrels months later. The nation won’t accept any curbs that would bring its output below the pre-sanctions level of 4 million barrels a day, Oil Minister Bijan Namdar Zanganeh said Thursday.

Russian oil output in November hovered near a post-Soviet-era record set the previous month. Production of crude and gas condensate averaged 10.779 million barrels a day during the month, data from the Energy Ministry’s CDU-TEK unit show. Russia’s strategy is to maintain its output, Energy Minister Alexander Novak said on Thursday in Moscow.

"Russia is going full out and we’re expecting Iranian production to increase in the coming year," Hodge said. "There’s no shortage of potentially negative supply developments out there."

U.S. crude stockpiles increased by 1.18 million barrels to 489.4 million last week, keeping inventories more than 120 million barrels above the five-year seasonal average, Energy Information Administration data showed Wednesday.

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