Oil Soars to Four-Year High on Supply Fears
September 25 2018 - 11:50AM
Dow Jones News
By Christopher Alessi
Oil prices rose Tuesday, building on the four-year high reached
in the wake of a weekend decision by OPEC and its production allies
to maintain their current production targets.
Light, sweet crude for November delivery rose 0.5% to $72.46 a
barrel on the New York Mercantile Exchange. Brent crude, the global
benchmark, rose 1% to $81.31 a barrel.
Meeting in Algiers on Sunday, the Organization of the Petroleum
Exporting Countries and its production allies, led by Russia,
reiterated that they want to adhere to current production quotas
first implemented at the start of 2017. That means continuing a
gradual ramp-up in production as the producers had agreed at the
start of the summer in an effort to bring down overcompliance with
the initial agreement.
However, the producers declined to announce specific plans to
raise production further, seemingly defying calls by President
Trump for the cartel to increase output to put a cap on prices --
sending prices soaring on Monday.
OPEC and Russia's public comments "showed comfort and
satisfaction with today's price levels and little willingness to
additionally boost output, " said Norbert Ruecker, head of macro
and commodity research at Julius Baer. "Supply concerns rise as the
Iran embargo nears, which supports oil prices," he added.
Oil investors next will turn their attention back to the U.S.,
where the Energy Information Administration is due to release its
weekly oil report on Wednesday morning. Many analysts are expecting
another counter-seasonal decline in U.S. crude oil inventories that
could add to the market's bullish tenor. U.S. crude stockpiles fell
to 394 million barrels in last week's report, the lowest since
February 2015.
"The glut is gone," said Phil Flynn at Price Futures in Chicago,
referring to oversupply problems in a recent oil-price downturn
that saw U.S. oil inventories as high as 536 million barrels in
March 2017. "Global oil prices are surging because we are now
facing a market that is undersupplied."
Ahead of the official EIA report, the American Petroleum
Institute, an industry group, is scheduled to release its own
weekly report on U.S. oil inventories Tuesday afternoon.
U.S. sanctions targeting Iran's oil exports are set to take
effect Nov. 4, raising concerns about a global supply crunch toward
the end of the year. Saudi Arabia -- the de facto head of OPEC --
and Russia have indicated they can produce more to fill the gap,
despite concerns over dwindling spare capacity. But there is still
widespread disagreement on how the cartel and its allies should
contain crude prices once the Iran sanctions take effect.
OPEC and 10 producers outside the cartel -- led by Russia --
first agreed in late 2016 to hold back production by around 1.8
million barrels a day starting in January 2017, in an effort to
rein in a supply glut that had weighed on prices since late
2014.
However, as a result of deeper cuts from countries like Saudi
Arabia and production outages in other OPEC members -- including
Iran and Venezuela -- compliance with the deal has exceeded the
planned quotas, rising to around 150% in May. OPEC and its partners
agreed in late June to bring compliance down to 100%, a goal they
reiterated on Sunday. Compliance with the deal stood at 129% in
August, according to OPEC.
Among refined products, gasoline futures for October delivery
rose 0.6% to $2.066 a gallon. Diesel futures rose 0.8%, to $2.3103
a gallon.
--Dan Molinski contributed to this article.
Write to Christopher Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
September 25, 2018 11:35 ET (15:35 GMT)
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