Oil Slips Before Doha Talks as IEA Sees Global Market Balancing

  • Crude suppliers to discuss output freeze in Doha on April 17
  • Agency sees crude glut falling to 200,000 barrels a day

Oil slipped a second day as a meeting of major crude producers in Doha this weekend is seen having minimal impact on supplies.

Futures slipped 0.6 percent in New York. Delegates from OPEC and other oil-producing countries have started arriving in Doha, Qatar’s Energy Minister Mohammed Al Sada said in a statement on Thursday, noting a “positive feeling” ahead of the summit. Declines eased earlier as the International Energy Agency said in a report that global oil markets will “move close to balance” as lower prices take their toll on output outside OPEC.

"There’s all this talk about Doha in the market but even if they announce an agreement to freeze the impact will be minimal," said Dan Heckman, senior fixed-income strategist in Kansas City, Missouri, at U.S. Bank Wealth Management, which oversees about $127 billion. "The Saudis and Russians are already pumping at near record levels."

Oil prices, which sank to the lowest level in almost 13 years in February amid a global surplus, have rebounded in the past two months as producers work on a plan to cap supply. While 40 analysts and traders surveyed by Bloomberg were evenly split over whether the Doha talks will succeed, a majority of those who predicted a deal said it would have no impact on actual flows of crude.

West Texas Intermediate for May delivery dropped 26 cents to settle at $41.50 a barrel on the New York Mercantile Exchange. The contract dropped 1 percent to $41.76 on Wednesday after rising 13 percent the previous three sessions.

Brent Backwardation

Brent for June settlement fell 34 cents, or 0.8 percent, to $43.84 a barrel, having earlier lost as much as 89 cents on the London-based ICE Futures Europe exchange. July Brent slipped 41 cents to $43.80. The global benchmark was at a $1.17 premium to WTI for June delivery.

Front-month Brent oil closed in backwardation, a situation where prices for prompt delivery are higher than those for later periods, for the first time since January as North Sea field maintenance is seen limiting European supply. The market has been in contango, a structure that may signal weak near-term demand or rising supply, for most of the past 21 months.

Purchases of Brent crude put options are out-numbering buys of call options by about three times, ahead of this weekend’s meeting in Doha, suggesting market concerns over the recent price rise.

Echo Chamber

"It seems like the various parties are trying to spin things ahead of the meeting in Doha," said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. "We’re in an echo chamber right now, and won’t know if the accomplish anything until Sunday."

The preliminary agreement by Russia, Saudi Arabia, Venezuela and Qatar to freeze output has put a floor under prices and a deal with additional producers would extend the rebound, according to a letter from Qatar’s Al Sada to his Norwegian counterpart. The letter -- an invitation to the Doha meeting that Norway declined -- was obtained by Bloomberg through a freedom-of-information request.

"All parties involved should sit together and agree on a mechanism that supports oil prices," Iraq’s Deputy Oil Minister Fayyad Al-Nima said in a telephone interview. Suppliers should agree on steps to ease a glut of 2 million barrels a day, he said, without saying if his nation will cap output.

Saudi Arabia has said that its commitment to a production cap would depend on Iran’s participation, while the Iranian oil minister has dismissed the prospect of joining the deal as “ridiculous” for now.

Shrinking Surplus

The world surplus will diminish to 200,000 barrels a day in the last six months of the year from 1.5 million in the first half, the IEA said in a monthly report. Production outside the Organization of Petroleum Exporting Countries will decline by the most since 1992 as the U.S. shale-oil boom falters.

"The drop in U.S. shale production is helping rebalance the market," said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. "We might be looking at a deficit before too long."

U.S. crude inventories rose by 6.6 million barrels last week to 536.5 million, the most since 1930, according to the Energy Information Administration. Crude production fell to 8.977 million barrels a day last week, agency data show. It was the first decline bellow 9 million barrels in 18 months.

Other news:

  • OPEC said Wednesday it may deepen cuts to its forecast for global oil demand growth due to slowing economic expansion in emerging markets, warmer weather and the removal of fuel subsidies.
  • Iran’s crude shipments have risen by more than 600,000 barrels a day this month, adding to the pressure facing producer nations as they prepare to meet in Doha.
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