You are here
Oil caps worst week since November with all eyes on Opec cuts
[NEW YORK] Oil posted the biggest weekly decline since November as traders await proof that Opec and other producers are following through on promises to cut production.
Futures declined 1.2 per cent in New York on Friday and slid 3 per cent this week. Saudi Arabia reduced output to less than 10 million barrels a day and will consider renewing its pledge to trim supply in six months, according to Energy Minister Khalid al-Falih.
Still, until monthly production data is released, "these claims cannot be verified," according to Commerzbank AG. The UAE doesn't intend to reduce output more than was agreed upon with Opec in November and a tanker is said to sail to Libya's Zawiya port to load Sharara crude.
Oil has advanced since the deal among members of the Organization of Petroleum Exporting Countries and 11 other nations to temper global supply. It has been unable to sustain its rally above US$55 amid concern that rising prices will spur more production. While Middle East producers including Saudi Arabia have signaled they're sticking to the pledged reductions, the US Tuesday raised this year's output forecast.
"We're seeing strong compliance from the usual suspects, the Saudis and their Gulf counterparts," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. But US output rose by 176,000 barrels a day last week and "the exempted countries are going gangbusters in production and exports," he said.
West Texas Intermediate for February delivery slid 64 US cents to settle at US$52.37 a barrel on the New York Mercantile Exchange. Total volume traded was about 11 per cent below the 100-day average.
Brent for March settlement dropped 56 US cents to end the session at US$55.45 on the London-based ICE Futures Europe exchange. The global benchmark was at a premium of US$2.30 to March WTI.
Explorers reduced US rigs searching for oil for the first time since October, after expanding to the highest level in a year the previous week. The increase has helped fuel a rebound in US oil production, which rose to the highest level since April last week.
The Opec supply deal has only been in effect for two weeks, and the group will adopt compliance mechanisms at a meeting in Vienna on Jan 22, Opec Secretary-General Mohammad Barkindo said in a Bloomberg Television interview in Abu Dhabi on Friday.
The caps on supply, together with rising demand and natural decreases in output in some countries, will help balance the market and support prices, al-Falih said at an energy conference in Abu Dhabi on Thursday. The last time Saudi production came in below 10 million barrels a day was in February 2015, according to data compiled by Bloomberg.
"The markets are trying to get a sense of what sort of compliance we will get," Abhishek Deshpande, chief energy analyst at Natixis SA in London, said by telephone. Producers are seeing that oil prices have not climbed to US$60 yet, "and if they want that, they must provide the market with confidence."
Kazakhstan may not be able to extend its commitment to helping Opec curb global oil supply into the second half because its giant new field will accelerate production.
China's oil imports last year expanded at the fastest pace in six years as the cheapest crude in more than a decade triggered stockpiling and independent refiners accelerated purchases.
Royal Dutch Shell Plc oil workers began a strike in Gabon after talks failed.