Oil Tops $50 as Traders Ponder OPEC Accord, U.S. Stockpile Data

  • Prices are up about 13% since producers struck deal in Algiers
  • Crude supplies declined 3.8 million barrels last week: API

Morning Meeting: OPEC Price Freeze and Saudi Bonds

Oil rose, closing above $50 a barrel in New York as investors ponder whether OPEC will follow through with production cuts. Futures extended gains after an industry report was said to show a U.S. supply drop.

Futures advanced 0.7 percent. Speculators have bolstered bullish bets since the OPEC accord was reached on Sept. 28 in Algiers. Fractures have emerged within the group that threaten to derail a final agreement on quotas, expected in Vienna on Nov. 30. Prices rose from the close after the American Petroleum Institute was said to report U.S. stockpiles fell by 3.8 million barrels last week. The decline contrasted with analysts surveyed by Bloomberg who projected a government report Wednesday will show supplies rose.

Oil is up about 13 percent since the Organization of Petroleum Exporting Countries reached the deal to manage supply, and prices have closed above $50 for six of the last eight sessions as investors await a November meeting where the group is due to implement the agreement. The Energy Information Administration will release its report on inventories Wednesday.

"We’re waiting for new headlines," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. "Maybe API, but for sure the EIA data will be market moving. We’re looking for a rise in production and it will be interesting to see if production gains."

West Texas Intermediate for November delivery advanced 35 cents to settle at $50.29 a barrel on the New York Mercantile Exchange. WTI traded at $50.77 at 5:01 p.m. after the API report. Total volume traded was 21 percent below the 100-day average.

U.S. Stockpiles

Brent for December settlement climbed 16 cents to settle at $51.68 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.06 premium to December WTI’s closing price.

The Energy Information Administration will probably report that U.S. crude inventories rose 2.1 million barrels last week, a Bloomberg survey showed. Stockpiles of gasoline and distillate fuel declined, according to the analysts.

For a story on previous attempts to curtail oil supplies, click here.

"There’s large speculative interest in the market, it’s almost faddish," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "They are giving credence to OPEC and expect that they will be able to pull something together when they meet next month."

Further Negotiations

Oil prices have risen the past three weeks despite brimming stockpiles. OPEC countries have agreed to limit production to a range of 32.5 million to 33 million barrels a day, though individual allocations haven’t been decided; an OPEC committee will meet later this month to try to resolve differences.

"The market has priced in the OPEC news," Haworth said. "Now they have to agree on a formula on Nov. 30 and then implement it."

The oil market will rebalance in 2017 as an unprecedented drop in investment over the past two years starts affecting supply and OPEC hammers out a deal to cap production, said the chief executive officer of Statoil ASA, Norway’s biggest crude producer.

“The fundamentals of the oil market are heading toward a rebalancing -- we think that is going to happen at some point during 2017,” Eldar Saetre said in a Bloomberg Television interview from London on Tuesday. “Beyond that point, we expect an uptick in the oil price, simply reflecting the fact that investment in conventional oil production has been capped significantly.”

Oil-market news:

  • An increase in WTI’s 50-day moving average above its 100-day counterpart lowers the odds of a dip below $40 a barrel and indicates it may trade as high as $55, absent a disruption, according to Bill O’Grady of Confluence Investment Management.
  • If oil reaches $60 a barrel, U.S. shale producers would take six months to a year to react, International Energy Agency Executive Director Fatih Birol said in a Bloomberg Television interview.
  • Saudi Arabian Oil Co. said a crude price of $50 to $60 is high enough to meet supply needs in the coming years.
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