Oil tops US$50 as traders ponder Opec accord, US stockpile data

[NEW YORK] Oil rose, closing above US$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 US supply drop.

Futures advanced 0.7 per cent. 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 US 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 per cent since the Organization of Petroleum Exporting Countries reached the deal to manage supply, and prices have closed above US$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 US Bank Wealth Management, which oversees US$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 US cents to settle at US$50.29 a barrel on the New York Mercantile Exchange. WTI traded at US$50.77 at 5:01pm after the API report. Total volume traded was 21 per cent below the 100-day average.

US Stockpiles

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

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

"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," Mr 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."

BLOOMBERG