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Oil caps weekly gain after Opec holds informal talks with Russia

Saturday, November 19, 2016 - 08:35

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Oil capped the first weekly gain since mid-October after Opec member Algeria said the group's meeting with Russia gave it confidence a deal can be reached to re-balance global markets.

[NEW YORK] Oil capped the first weekly gain since mid-October after Opec member Algeria said the group's meeting with Russia gave it confidence a deal can be reached to re-balance global markets.

Futures rose 0.6 per cent in New York. Algerian Energy Minister Noureddine Boutarfa said he's more optimistic of clinching an agreement after discussions between the Organization of Petroleum Exporting Countries and Russia in Doha.

Russian Energy Minister Alexander Novak said a consensus is emerging and that his country is considering an output freeze of six months. Prices fell earlier as the US dollar rallied and US explorers added the most oil rigs in 16 months.

"The expectation is that Opec will come up with something," said Bill O'Grady, chief market strategist at Confluence Investment Management in St Louis, which oversees US$5.6 billion. "The talk of a cut is what's buoyed the market the last couple of months."

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Oil has retreated since reaching a 2016 high last month near US$52 a barrel amid skepticism about the ability of Opec to implement the deal agreed on Sept 28 in Algiers. The group is seeking to trim output for the first time in eight years, a plan complicated by Iran's commitment to boost production and Iraq's request for an exemption to help fund its war with Islamic militants. Neither country sent ministers to the Doha talks.

West Texas Intermediate for December delivery rose 27 US cents to close at US$45.69 a barrel on the New York Mercantile Exchange. Prices advanced 5.3 per cent this week after falling the previous three.

Brent for January settlement increased 37 US cents, or 0.8 per cent, to US$46.86 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude rose 4.7 per cent this week. Brent closed at a 50-cent premium to January WTI.

The US dollar is poised for its best rally in more than 15 years against the yen and global bonds were on course for their biggest two-week loss in at least 26 years.

The Bloomberg US dollar Spot Index, a gauge of the greenback against 10 major peers, rose to the highest level since February.

"The US dollar has been part of the mix since the Trump election," said Mike Wittner, head of oil-market research at Societe Generale SA in New York. "The market is sensitive to the latest Opec news, but there have been no signs of a breakthrough." Rigs targeting crude in the US rose by 19 to 471 this week, the highest level since January, Baker Hughes Inc said on its website Friday.

While Saudi Arabian Energy Minister Khalid Al-Falih told Al Arabiya television he's optimistic a deal will be reached on Nov. 30, only 7 of 20 analysts surveyed by Bloomberg this week expect Opec to set production targets for its members needed to make an agreement work.

Opec agreed in Algiers to reduce collective output to 32.5 million to 33 million barrels a day and has been trying to persuade other suppliers to join the cuts, notably Russia. Trimming supply to the lower end of that range will help speed up the recovery of the market, Mr Al-Falih said.

Drillers burned by a two-year slump in crude prices are slowing exploration of deep-water prospects off the coast of Africa, undermining a key driver of supply growth on the continent.

Kuwait renewed a contract to supply Egypt with crude oil for the next three years, according to a senior Kuwaiti government official.

Nigeria reached a US$5.1 billion settlement to reimburse foreign oil companies including Exxon Mobil Corp and Royal Dutch Shell Plc for past operating costs.

Russian billionaire Mikhail Gutseriev's initial public offering of as much as 20 per cent of Russneft PJSC may give the oil producer a valuation as high as 176 billion rubles (S$3.9 billion).

BLOOMBERG

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