Oil Falls From 15-Month High Amid Questions on Russian Stance

  • Rosneft, Lukoil express different views on supply management
  • Crude market to rebalance faster if OPEC implements deal: IEA

Goldman's Currie: Higher Likelihood of an OPEC Agreement

Oil slipped from a 15-month high in New York amid uncertainty over whether Russia would join an OPEC deal to curb supply. 

Futures fell 1.1 percent. Russia’s biggest producer Rosneft PJSC said it won’t cut output, according to Reuters, after President Vladimir Putin said at a conference in Istanbul that his nation is willing to join efforts by OPEC to stabilize the market through a production freeze or cut. Supply and demand will come back into balance earlier than expected if OPEC’s accord to trim output is implemented, the International Energy Agency said. Price declines accelerated as the dollar climbed, curbing the appeal of commodities.

Oil rose to the highest in more than a year on Monday after Saudi Arabia expressed optimism that the Organization of Petroleum Exporting Countries would work out a deal and Russia voiced its support. An increase to $60 a barrel would probably trigger a jump in North American production while trimming global demand growth, IEA Executive Director Fatih Birol said Tuesday. U.S. output has halted its decline as higher prices revive drilling.

"There’s been a lot of talk and it’s helped buoy the market, but you have to take it with a big grain of salt," said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. "Nobody has committed to anything new. I truly don’t believe OPEC or Russia will take any action."

Rosneft Skepticism

West Texas Intermediate oil for November delivery fell 56 cents to $50.79 a barrel on the New York Mercantile Exchange. Total volume traded was 71 percent above the 100-day average.

Brent for December settlement dropped 73 cents, or 1.4 percent, to $52.41 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.17 premium to December WTI.

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.6 percent. A weaker U.S. currency reduced the appeal of dollar-denominated raw materials as an investment.

"The speculators appear to have fully priced in the concept that Saudi Arabia and Russia will take action," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. "It’s smart to pause because we are faced with the fact that we have a well-supplied market and U.S. producers will come back if prices rise."

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Russian Doubts

OPEC needs to reach an internal agreement before Russia can discuss specific production levels with companies operating in country, Energy Minister Alexander Novak said at the World Energy Congress in Istanbul Tuesday. 

Rosneft Chief Executive Officer Igor Sechin said he doubts some OPEC countries such as Iran, Saudi Arabia and Venezuela would cut output, Reuters reported Tuesday, citing an interview. Sechin’s comments don’t contradict President Putin’s stance, Kremlin spokesman Dmitry Peskov told reporters on a conference call. If OPEC and Russia are able to reach an agreement, Rosneft will “of course” comply, Rosneft spokesman Mikhail Leontyev said.

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Leonid Fedun, vice president of Russia’s second-largest producer, Lukoil PJSC, said the nation’s oil companies will unify behind their government if talks with OPEC result in an agreement. A supply deal that includes Russia can be expected shortly after OPEC’s Nov. 30 meeting in Vienna, Fedun said. 

Potential Deal

"There probably will be a deal," said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. "They will probably succeed in raising the price if they can get production down to 33 million barrels a day."

For a chart showing shale drillers’ reaction to OPEC’s Algiers deal, click here.

OPEC pumped a record 33.64 million barrels of crude a day in September, the IEA said in a report Tuesday. Returning volumes from Libya, Nigeria and Iran suggest that “bigger cuts” would have to be made by others, notably Saudi Arabia, to meet the production ceiling agreed in Algiers last month.

There may be a higher probability of an agreement between Russia and Saudi Arabia to cut production, but the deal may prove self-defeating if the resulting increase in prices boosts supply from other producers, Goldman Sachs Group Inc.’s Jeff Currie said on Bloomberg TV Tuesday.

Oil-market news:

  • U.S. inventories probably increased by 1.75 million barrels last week, rising for the first time in six weeks, according to a Bloomberg survey.
  • BP Plc said it won’t proceed with oil exploration in the offshore Great Australian Bight, five years after it began looking for resources in the area and before it was allowed to drill any wells.
  • Vitol Group posted a 42 percent decline in first-half profit as the world’s largest independent oil trader grappled with fewer opportunities to benefit from energy-market price swing

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