Brent Oil Falls as Investors Await Signs of Production Curbs

  • Crude market balancing in first half of year, Al-Falih says
  • Dollar falls to one-month low following Trump comments

OPEC's Barkindo: Hope to See Balance Return in 2017

Brent oil declined as investors looked for signs of compliance by OPEC and other producers with an output-reduction accord.

Futures fell 0.7 percent in London after earlier climbing as much as 2 percent. Almost 1 billion barrels of oil held in inventories must be used up before global supply and demand are closer to balance, Dana Gas PJSJ Chief Executive Officer Patrick Allman-Ward said in Davos. The high level of compliance with the supply-cut accord and rising global demand should balance the market in the first half of the year, Saudi Arabia’s Energy Minister Khalid Al-Falih said. 

Crude has risen since the Organization of Petroleum Exporting Countries and 11 other countries agreed late last year to trim supply by about 1.8 million barrels a day. While Middle East producers have signaled they’re rapidly implementing the agreed cuts, the rally’s momentum has fizzled amid concern that higher prices would spur more supply elsewhere. The U.S. recently raised this year’s output estimate, while China’s production is forecast to tumble.

"There’s fighting in the market about what will come from the OPEC deal," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. "There’s a raft of statistics coming out in the next week that may give a sign of how things are panning out. Market participants are ready at the starting block."

Brent for March settlement declined 39 cents, or 0.7 percent, to $55.47 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $2.21 premium to March West Texas Intermediate crude.

WTI for February delivery rose 11 cents to settle at $52.48 a barrel at on the New York Mercantile Exchange. Monday’s transactions will be booked with Tuesday’s because of the Martin Luther King Jr. holiday in the U.S.

Broken Down

The Bloomberg Dollar Spot Index, a gauge of the currency against 10 major peers, dropped to a one-month low. A weaker greenback usually increases investor interest in commodities denominated in the currency.

"The dollar-oil negative correlation has broken down," Kilduff said. "It’s unusual to see them become so detached."

Many countries are “going the extra mile” in making deeper production cuts than they pledged, and OPEC will stop intervening in the market once global crude inventories return to their five-year average, Al-Falih said on Monday. Demand will pick up in the summer and OPEC wants to make sure markets are well-supplied, he said.

See also: Saudi plans for early end to OPEC pact risk leaving job undone

“We still have a significant global storage of oil, close to a billion barrels,” Allman-Ward said Tuesday in a Bloomberg TV interview with Francine Lacqua at the World Economic Forum in Davos, Switzerland. Dana Gas, based in the United Arab Emirates, explores for and produces natural gas in the Middle East. Gas is often sold at prices linked to crude oil.

Market Balance

The International Energy Agency sees the oil market balancing in the first half of 2017, Executive Director Fatih Birol said in Davos. Bloated global oil stockpiles should start to drop, United Arab Emirates Energy Minister Suhail Al Mazrouei said in an interview in Abu Dhabi.

"We opened the week higher, but couldn’t maintain it," Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone. "We remain a range-bound market and will remain one until we get some signs that they are following through with the cuts."

Oil-market news:

  • China’s production is forecast to fall by as much as 7 percent this year, extending a record decline in 2016, according to analysts at CLSA Ltd., Sanford C. Bernstein & Co. and Nomura Holdings Inc.
  • Venezuelan President Nicolas Maduro, speaking on state television, called for a producer meeting between heads of state from OPEC and countries outside the group during the first quarter. Maduro hopes for a Venezuelan oil price of $60 a barrel in the first half, he said.
  • Exxon Mobil Corp. will more than double its presence in the Permian Basin with acquisitions from the Bass family valued at as much as $6.6 billion.
  • Noble Energy Inc. agreed to buy Clayton Williams Energy for $2.7 billion in stock and cash to expand in the Southern Delaware Basin of the Permian shale formation.
  • BP Plc is not yet ready to boost spending despite the rebound in oil prices, Chief Executive Officer Bob Dudley said in a Bloomberg television interview in Davos, Switzerland.
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