Oil Trims Second Monthly Gain as OPEC Agrees to Production Cut

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

Oil trimmed a second monthly gain on OPEC’s plan to reduce output for the first time in eight years.

Futures lost 1 percent in New York, falling amid a decline in global equities. Prices are up 5.8 percent for the month, heading for the first September increase since 2010. Iran will be exempt from the cuts and an OPEC committee will recommend production caps for members at a formal meeting in November after the deal was announced Wednesday. The agreement represented a “capitulation” to U.S. shale drillers, according to Warwick Energy Group, a privately held investor in thousands of oil wells.

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. The market was caught by surprise after Saudi Arabia and Iran had signaled before the meeting 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 it can be completed.

“It’s good that OPEC is going to limit production but sticking to the deal is the big headwind facing the organization,” David Lennox, a resources analyst at Fat Prophets in Sydney, said by phone. “We’re yet to get the exact details on which countries will contribute the cut, but the Saudis could handle that on their own without too much hassle.”

West Texas Intermediate for November delivery was at $47.27 a barrel on the New York Mercantile Exchange, down 55 cents at 8:21 a.m. in London. The contract rose 78 cents to $47.83 on Thursday, capping a 7.1 percent advance over two days. Total volume traded was about 11 percent below the 100-day average. Prices are down about 2.1 percent for the quarter.

U.S. Shale

Brent for November settlement, which expires Friday, lost as much as 67 cents to $48.57 a barrel on the London-based ICE Futures Europe exchange. Prices are up 3.4 percent this month and down 2.1 percent for the quarter. The global benchmark crude was at a premium of $1.37 to WTI. The more-active December contract was 64 cents lower at $49.17 a barrel.

The Stoxx Europe 600 Index fell as much as 1.5 percent on Friday, following a 1 percent drop in the MSCI Asia Pacific Index. The Asian index is still up 8.5 percent for the quarter.

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 418 in the week ended Sept. 23, 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.
  • Brazil’s main oil union FUP has rejected Petrobras Brasileiro SA’s most recent salary proposal, and representatives will meet Thursday afternoon with management to demand a new offer, the union said on its website.

— With assistance by Perry Williams

    Before it's here, it's on the Bloomberg Terminal.