Oil Climbs on Report Iran May Support OPEC Production Freeze

Iran May Support OPEC Output Freeze
  • Any OPEC freeze deal may prove ‘self-defeating’: Goldman Sachs
  • Iraq seeks to boost output before OPEC members meet in Algiers

Oil rose, reversing an earlier decline, on speculation Iran may be more willing to cooperate with other producers seeking to freeze output.

Prices closed 1.5 percent higher after Reuters reported that Iran is sending "positive signals" that it may support joint action to bolster the oil market, citing unidentified sources in OPEC and the oil industry. Iran hasn’t decided whether to join any action, according to the sources. If OPEC and some other producers agree to cap output at informal talks next month, the resulting price boost may help other suppliers revive output, Goldman Sachs analysts wrote.

"This is just more jawboning," said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. "Iran, Iraq and Saudi Arabia are the OPEC members that everyone is listening to. The market will react to any news that comes from them."

Oil entered a bull market Aug. 18, having climbed more than 20 percent since dipping below $40 a barrel earlier in the month. Crude was driven higher partly by speculation that discussions among members of the Organization of Petroleum Exporting Countries may lead to action to stabilize the market. Prices subsequently retreated as Iraq sought to increase exports and Nigerian militants called an end to hostilities, potentially boosting supply.

Concrete Action

West Texas Intermediate for October delivery rose 69 cents to settle at $48.10 a barrel on the New York Mercantile Exchange. Prices dropped as much as 1.7 percent earlier. The September contract fell 3 percent to expire at $47.05 on Monday. Total volume traded was 2.1 percent above the 100-day average.

Futures retreated from the settlement after the industry-funded American Petroleum Institute was said to report U.S. crude supplies rose 4.46 million barrels last week. WTI traded at $47.67 at 4:45 p.m in New York.

Brent for October settlement climbed 80 cents, or 1.6 percent, to $49.96 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.86 premium to WTI.

"This obviously gives cause for optimism but it’s far from concrete action," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "People are buying on the rumor. We’ll have to see if they sell on the news."

A deal would show signs of cooperation from Saudi Arabia’s new energy minister after six failed attempts, Goldman analysts including Damien Courvalin said in a report dated Aug. 22. Saudi Arabia and Iran continue to focus on market share and appear unlikely to unilaterally accept a freeze, Goldman said. Supply will remain the driver for oil prices in coming weeks, with no evidence demand growth is weakening, the bank said

Iraqi Request

Iraq still isn’t producing as much oil as it should be, Iraqi Prime Minister Haider al-Abadi told reporters at a press conference in Baghdad on Tuesday. Newly installed Oil Minister Jabbar Al-Luaibi called on companies to increase oil and gas production to boost national revenue, according to an e-mailed statement from the Oil Ministry on Tuesday. The country hasn’t said if Al-Luaibi will attend the meeting in Algiers.

U.S. crude inventories probably dropped by 850,000 barrels last week, according to the median estimate in a Bloomberg survey before the Energy Information Administration report on Wednesday. Gasoline supplies probably shrank by 1.7 million barrels. Crude and motor-fuel inventories are still at their highest seasonal level in at least two decades.

Oil-market news:

  • In Nigeria, the cease-fire declared by the Niger Delta Avengers should be viewed with caution, according to Commerzbank AG and Global Risk Management Ltd. The Avengers have previously distanced themselves from talks with the government.
  • China’s oil demand may be cut by 250,000 barrels a day in the third quarter as the country limits pollution from factories before a Group of 20 summit in early September, according to consulting firm Energy Aspects Ltd.
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