Oil Prices Pause After Rallying to Year High -- Update
December 06 2016 - 10:40AM
Dow Jones News
By Timothy Puko, Sarah McFarlane and Dan Strumpf
Oil prices slipped off one-year highs Tuesday, as traders took
profits from a sharp rally that followed OPEC's decision to cut
production.
While many traders and analysts have become more confident that
the Organization of the Petroleum Exporting Countries was likely to
follow through on production cuts, others remain skeptical. On
Tuesday, the skeptics pointed to data showing another monthly
increase to a new record-high output in November and to a
deeper-than-expected price cut Saudi Arabia just issued for Asian
customers.
An increase in U.S. stockpiles also may be weighing on prices,
brokers said. Stockpiles at Cushing, Okla., rose by about 3 million
barrels in the week ended Friday, data provider Genscape Inc. said
on Monday, according to people who had reviewed the report. That
limited gains Monday and appeared to be adding to losses again
Tuesday, ahead of the official U.S. government update on stockpiles
scheduled for Wednesday, brokers said.
U.S. crude for January delivery recently lost $1.32, or 2.6%, to
$50.47 a barrel on the New York Mercantile Exchange. Brent, the
global benchmark, lost $1.13, or 2.1%, to $53.81 a barrel on ICE
Futures Europe. Losses would snap a four-session winning-streak for
both benchmarks.
A stall in the rally wasn't surprising, even within a week of
OPEC's decision, Amrita Sen, chief oil analyst at Energy Aspects in
London, said in an email. "We have always said prices will move up
on the news, then sell off till the market finds evidence of the
cuts and then move higher," she said.
OPEC's decision to cut output by 1.2 million barrels a day,
equivalent to around 1% of global supply, had sent oil rallying
around 15% over the past week.
But traders are spooked that output from OPEC has kept growing,
seemingly up to the very day of the deal, brokers said. There also
are questions about whether a meeting for Saturday between OPEC and
nonmembers, including Russia, happens the way it is supposed to,
said Bob Yawger, director of the futures division at Mizuho
Securities USA Inc. OPEC wants its non-OPEC counterparts to slash
600,000 barrels a day.
Commerzbank cast doubt on such a deal partly because Saudi
Arabia, the quasi-head of OPEC, appears to be waiting until January
to seasonally adjust its production to its lower winter level,
while also cutting its January selling price for Asian consumers,
maintaining its strategy of defending market share.
"What you want to keep a watch out for now is the (price) for
Iran," Mr. Yawger said. "If they undercut the Saudis, then we have
a problem."
There is also a risk that the OPEC members who are exempt from
the deal -- Libya and Nigeria -- may ramp up production faster than
anticipated, offsetting cuts elsewhere.
Traders and analysts will keep a close watch on export volumes
in the New Year for evidence of the cuts. The cartel has a
checkered history for complying with quotas.
"The initial reaction is understandably bullish, but the
question on everyone's mind is how credible is last week's
agreement," said Tamas Varga at brokerage PVM.
Gasoline futures recently lost 1.5% to $1.5345 a gallon, and
diesel futures lost 1.4% to $1.6348 a gallon.
Write to Timothy Puko at tim.puko@wsj.com, Sarah McFarlane at
sarah.mcfarlane@wsj.com and Dan Strumpf at
daniel.strumpf@wsj.com
(END) Dow Jones Newswires
December 06, 2016 10:25 ET (15:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.