Oil Caps Biggest Monthly Gain Since April After OPEC Output Pact

  • OPEC will decide on quotas in November; Iran exempt from deal
  • Agreement is ‘capitulation’ to U.S. shale: Warwick Energy

OPEC Freeze May Raise Valuation Expectations: Foley

Oil advanced, adding to the biggest monthly gain in five months, after OPEC agreed to its first output cut in eight years on Wednesday.

Futures climbed 0.9 percent in New York as equities rose and the dollar retreated against its peers, bolstering the appeal of commodities. Crude surged 7.9 percent this month, providing the first September increase since 2010. Oil surged the most in more than five months after the announcement of the deal, which will see the Organization of Petroleum Exporting Countries reduce production to a range of 32.5 million to 33 million barrels a day.

"This has been a momentous week," said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. "OPEC has gotten some reward for this nascent effort at coming together."

The agreement caught the market by surprise after prior signals from Saudi Arabia and Iran that an accord was unlikely. OPEC now faces the challenge of implementing the cuts, with Goldman Sachs Group Inc. and Morgan Stanley expressing skepticism that the deal can be completed. Nigeria, Iran and Libya have said they are exempt from an agreement, while Iraq has said it doesn’t accept OPEC’s estimates of its production levels.

West Texas Intermediate for November delivery rose 41 cents to settle at $48.24 a barrel on the New York Mercantile Exchange. Prices climbed 8.5 percent this week and slipped 0.2 percent this quarter. Total volume traded was 13 percent below the 100-day average at 2:36 p.m.

U.S. Shale

Brent for November settlement, which expired Friday, dropped 18 cents to $49.06 a barrel on the London-based ICE Futures Europe exchange, closing at an 82 cent premium to WTI. The more-active December contract increased 38 cents to $50.19. The North sea crude rose 4.3 percent this month and fell 1.2 percent this quarter.

While Saudi Arabia lowered output this month -- following the typical seasonal shift as local consumption sags at the end of summer -- the group’s overall output remained steady as Nigeria and Libya restored disrupted supplies and Iran continued its return from international sanctions, according to data from Vienna-based consultants JBC Energy GmbH.

Russia is sticking with an assumption that oil will average $40 a barrel in the next three years and won’t revise its budget outlook after the OPEC agreement, according to Finance Minister Anton Siluanov.

Falling Apart

"They have a lot of wood to chop," Kilduff said. "The Iraqis are mad and probably won’t take part in any cut, and the Russians are sounding lukewarm at best. It’s only a matter of time before this falls apart."

For a story on how the OPEC output deal was completed, click here.

Oil will need to hold above $50 a barrel for months before U.S. companies commit to more spending, according to analysts at firms including S&P Global Platts and Oppenheimer & Co. The number of rigs targeting oil in the U.S. climbed to 425 this week, the highest level since February, according to data from Baker Hughes Inc.

Oil-market news:

  • OPEC’s planned output cuts will need at least six months to have an effect on the oil market, according to Bank of America Merrill Lynch.
  • The agreement represented a “capitulation” to U.S. shale drillers, according to Warwick Energy Group, a closely held investor in thousands of oil wells.
  • Brazil’s main oil union FUP has rejected Petrobras Brasileiro SA’s most recent salary proposal, and representatives will meet with management to demand a new offer, the union said on its website.
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