Oil Hovers Near $44 as Market Weighs Libya, Nigeria Output Caps

Updated on
  • OPEC members invited to committee meeting July 24: Kuwait
  • Russia’s Novak says output pact is working “successfully”

Oil Sees Weekly Decline as U.S. Output Rises

Oil closed above $44 a barrel as the market weighed the likelihood and potential effectiveness of Libya and Nigeria capping production.

The two African producers, which have boosted output since being exempt from OPEC cuts, have been invited to a July 24 meeting in Russia to discuss the stability of their production, Kuwait’s Oil Minister Issam Almarzooq said in Istanbul. Russian Energy Minister Alexander Novak said the oil market situation will be discussed at the meeting and the pact between OPEC and non-OPEC is working “successfully.”

The possibility of Libya and Nigeria agreeing to production caps is giving investors hope that prices may rise, though the uncertainty is causing “a see-saw effect,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. “People are worried that it could turn out to be a prolonged affair getting them to the table to sign off on something.”

Oil has traded below $50 a barrel since May in New York amid concerns that elevated global oil inventories and rising output from the U.S. and other producers will offset cuts by the Organization of Petroleum Exporting Countries and its partners. U.S. shale production can expand with prices in the mid-$40s, according to JPMorgan Chase & Co. Libya and Nigeria together added 440,000 barrels a day of production in May and June as fields restarted, according to data compiled by Bloomberg.

West Texas Intermediate for August delivery rose 17 cents, or 0.4 percent, to settle at $44.40 a barrel on the New York Mercantile Exchange, after trading in a $1.19-range. Total volume traded was about 23 percent above the 100-day average.

Brent for September settlement increased 17 cents to end the session at $46.88 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.28 to September WTI.

Capping Supplies

If Libya and Nigeria are able to stabilize their output at current levels, they will be asked to cap supply as soon as possible, Kuwait’s Almarzooq said.

“The output from Libya and Nigeria have actually had more of an impact in undermining the efficacy of OPEC’s cuts than even U.S. shale,” Tamar Essner, an energy analyst at Nasdaq Inc. in New York, said by telephone. “If they can put a freeze, that remains to be seen, but that will be an important driver in terms of really reducing OPEC’s exports.”

Deepening production cuts already agreed to by OPEC and partners is not on the agenda for the July 24 meeting in St. Petersburg, Almarzooq said. It’s premature to talk about that option, OPEC Secretary-General Mohammad Barkindo said in Istanbul.

BNP Paribas cut its 2017 Brent forecast by $9 to $51 a barrel and for 2018 by $15 to $48, while making similar reductions for WTI. “OPEC’s objective to reduce oil inventories to their five-year average is elusive in the short-term,” the bank’s head of commodity markets strategy Harry Tchilinguirian said in an emailed report.

Oil-market news:

  • Cushing, Oklahoma crude inventories decreased 1.4 million barrels in the week ended July 7, according to a forecast compiled by Bloomberg.
  • Kuwait keeps oil pricing for the U.S. at a 55-cent-a-barrel discount for August, while crude pricing to Asia is at a $1.45-a-barrel discount, Kuwait Petroleum Corp. says in emailed statement.
  • Iraq will explore for and develop hydrocarbons at onshore fields shared with Kuwait and Iran, the Oil Ministry said in statement posted on its website.
  • Investors withdrew $357.6 million from the U.S. Oil Fund last week, the largest weekly outflow since December, data compiled by Bloomberg show.

— With assistance by Ben Sharples, and Angelina Rascouet

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