Oil Falls From Three-Month High as Iran Refuses to Join Freeze

  • Iranian output surged 187,000 barrels a day in February: OPEC
  • OPEC Gulf delegates say producer meeting likely in April

Oil Drops From Three-Month High

Oil dropped from a three-month high as Iran said it would raise output to pre-sanctions levels before joining talks to freeze production.

Futures fell 3.4 percent in New York. Iran plans to raise output by about a third to 4 million barrels a day before it will consider joining any move to rebalance the market, the Iranian Students News Agency reported, citing Oil Minister Bijan Namdar Zanganeh. The Islamic republic boosted production by 187,800 barrels a day in February, the biggest monthly gain since 1997, the Organization of Petroleum Exporting Countries said in a monthly report.

Oil has rebounded after slumping to a 12-year low in February on speculation stronger demand and falling U.S. output will ease a surplus. The International Energy Agency said March 11 that prices may have reached their lowest point as shrinking supplies outside the OPEC and disruptions inside the group reduce the glut. U.S. crude supplies, meanwhile, grew to the highest level since 1930.

"The Iranians aren’t about to play along and freeze output," said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. "The fundamentals for the crude market are still very challenging. After a three-week short-covering rally in which we haven’t seen any real bullish news, the market is retreating."

West Texas Intermediate for April delivery fell $1.32 to settle at $37.18 a barrel on the New York Mercantile Exchange. The contract climbed 1.7 percent to $38.50 on Friday, the highest close since Dec. 4.

Iranian Plans

Brent for May settlement slipped 86 cents, or 2.1 percent, to $39.53 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade closed at a 69-cent premium to WTI for May delivery.

"Prices are down sharply after the Iranians thumbed their noses at the production freeze," said Bob Yawger, director of the futures division at Mizuho Securities USA in New York.

Iran plans to ramp up production as it seeks to regain lost sales after the lifting of sanctions in January. That sets it against suppliers such as Saudi Arabia and Russia, which have proposed freezing oil output as prices continue to languish more than 60 percent below their 2014 high. Iran pumped 3.13 million barrels a day last month, today’s OPEC report showed.

"Since Iran’s production decreased under sanctions, we totally understand Iran’s position to increase production and revive its share in the global markets,” Russian Energy Minister Alexander Novak told reporters in Tehran today, according to Iran Oil Ministry’s Shana news service. Novak spoke after meeting with Zanganeh.

Major oil producers are likely to meet in April to discuss a proposal to freeze output at January levels to stabilize the market, according to four Gulf OPEC delegates. Ministers from some OPEC members had suggested that such a meeting would take place this month in Russia.

President Vladimir Putin ordered the “main part” of Russia’s military force to begin to withdraw from Syria, saying it’s completed its main objectives. The pullout should begin Tuesday, Putin said Monday in Moscow at a meeting with Russia’s defense and foreign ministers. Russia’s intervention in Syria swung the war in favor of government forces, which made major advances since September.

Dollar Rebound

The price drop accelerated as the dollar advanced, curbing investor appetite for commodities priced in the U.S. currency. The Bloomberg Commodity Index, a gauge of 22 raw materials, declined as much as 1.4 percent. The Bloomberg Dollar Index, which tracks the currency against major peers, rose for the first time in four days.

Speculators’ net-long positions in WTI gained by 39,509 contracts of futures and options combined to 174,949 in the week ended March 8, according to the U.S. Commodity Futures Trading Commission. That’s the biggest increase since April and the highest level since October. Short positions fell by 38,233, the most in CFTC data going back to June 2006.

Saudi Arabian production; Projected U.S. supply gain; U.S. drilling rigs drop:

  • Saudi Arabia pumped 10.22 million barrels a day in February, little changed from the month before, according to a person with knowledge of the kingdom’s oil policy.
  • Saudi Arabia supplied market with 10.4 million barrels a day last month, as it shipped crude from storage, the source said.
  • U.S. crude supplies probably rose 2.5 million barrels in week ended March 11, according to analysts surveyed by Bloomberg before an Energy Information Administration report on Wednesday.
  • Active U.S. oil rigs declined by six to 386 last week, falling for a 12th week to the lowest since 2009, according to Baker Hughes Inc.
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