Oil Rises as OPEC Mulls Output-Cut Extension, Refiners Recover

  • OPEC and its allies may prolong supply cuts beyond mid-2018
  • Crude processors boost operating rates at plants after Harvey

Osmar Abib: No Near-Term Oil Stockpile Reduction

Oil edged higher as OPEC was said to be considering an extension of production caps beyond their March expiration and U.S. crude refiners accelerated their post-hurricane recovery.

Futures climbed 0.3 percent in New York. The Organization of Petroleum Exporting Countries and its allies may keep output cuts in place well into the second half of next year, according to people familiar with the matter. U.S. refineries hobbled by Hurricane Harvey are gradually resuming normal operations, though the American Petroleum Institute was said to report that, as many were shut last week, U.S. crude inventories climbed by 6.18 million barrels and gasoline supplies slid by 7.9 million barrels.

OPEC potentially extending cuts is “bullish in the sense that they are willing to do it, but it’s effectively bearish that they have to,” Kyle Cooper, director of research at IAF Advisors in Houston, said by telephone. “You’ve got refineries still in the process of coming back.”

Futures rose from the settlement after the API report. If the trade association’s numbers are confirmed by the government Wednesday, it would be the largest decline in gasoline supplies since 1990 and the biggest increase in crude stockpiles since March. U.S. crude inventories likely increased by 4.91 million barrels last week, according to a Bloomberg survey ahead of the release of the Energy Information Administration data.

If “refiners are shut down, they are not making gasoline or using crude,” James Williams, president of London, Arkansas-based energy researcher WTRG Economics, said by telephone. The API report is “not at all out of line. Whatever the numbers turn out to be from the EIA, they will both be large.”

West Texas Intermediate for October delivery traded at $48.40 a barrel at 4:42 p.m. after settling at $48.23 on the New York Mercantile Exchange. Total volume traded was about 5 percent below the 100-day average.

Brent for November settlement climbed 43 cents to end the session at $54.27 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.52 to November WTI.

OPEC Cuts

Stretching the duration of OPEC production limits by three months or more would fall under a worst-case scenario that ministers are now contemplating, the people said, asking not to be named because the talks were private. Discussions have included one option for a six-month extension, one person said. 

OPEC and other producers including Russia pledged in late 2016 to reduce output by about 1.8 million barrels a day to eliminate a global surplus. The original six-month agreement has already been extended once by nine months.

OPEC Is Said to Discuss Extending Cuts by More Than 3 Months

Hurricanes have shaken energy markets, with Irma shutting fuel stations and ports across Florida and Harvey shutting refining operations in the nation’s energy hub.

Exxon Mobil Corp. and Royal Dutch Shell Plc were said to be heating up equipment at Texas refineries to prepare them for restarts. LyondellBasell Industries NV’s 263,800 barrel-a-day Houston refinery was said to be on course to return a key gasoline-making unit to normal rates by Wednesday.

No Excitement

A measure of second-month WTI implied volatility slid to the lowest level since April, data compiled by Bloomberg show.

“You just went through two major events, two hurricanes, and there are no events on the horizon to get you excited,” Michael Hiley, head of over-the-counter energy trading at New York-based LPS Partners, said by telephone. “If you look at flat price, it has gone nowhere over the last month-and-a-half to two months.”

Oil-market news:

  • The EIA lowered its U.S. crude output forecast for next year to 9.84 million barrels a day from 9.91 million a day estimated in August, according to its Short-Term Energy Outlook.
  • The Port of Everglades in Florida was scheduled to reopen to ships Tuesday morning following Hurricane Irma. Buckeye Partners LP plans to resume limited service Wednesday at its Florida terminals and refined products pipeline system, according to a statement.

— With assistance by Melissa Cheok, Ben Sharples, and Grant Smith

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