Oil futures ended lower on Tuesday, a day after the U.S. benchmark settled at a seven-week high, as traders weighed prospects for the extension of OPEC-led production cuts and looked to upcoming weekly data on U.S. crude supplies and output.

On the New York Mercantile Exchange, October West Texas Intermediate crude the U.S. benchmark, shed 43 cents, or 0.9%, to settle at $49.48 a barrel, after touching a high of $50.42. On Monday, prices barely budged, but marked the highest settlement since the end of July, according to FactSet data. The October contract expires at the end of Wednesday’s session. November Brent crude the global benchmark, lost 34 cents, or 0.6%, to$55.14 a barrel on the ICE Futures Europe exchange.

While Saudi Arabia, as the de facto leader of the Organization of the Petroleum Exporting Countries, is “leading the cartel’s production cutback, the efforts to drain the glut has been rather difficult owing to a few over-steppers from within OPEC, along with rising U.S. output,” said Mihir Kapadia, CEO and founder of Sun Global Investors, in a note.

Data from the U.S. Energy Information Administration released Monday showed expectations for a 10th straight monthly rise in domestic shale-oil production. “This is one of the prime reasons the commodity continues to be stuck between [the] $52-$55 mark,” said Kapadia.

Iraqi oil minister Jabar al-Luaibi said Tuesday that Iraq and other OPEC members are considering options that include a proposal for the cartel’s output-cut deal to run through 2018 instead of expiring as planned in March. “All in all, the outlook seems to be bright and prices are rising,” al-Luaibi said during an industry event in the United Arab Emirates.

OPEC and 10 producers outside the cartel first agreed late last year to cap production at around 1.8 million barrels a day lower than peak October 2016 levels, part of an effort to alleviate the global oil glut and boost prices. The deal was extended in May through March 2018, but has been hindered by both a lack of compliance by some signatories and steady U.S. shale output. “News that Iraq is giving positive signals about supporting deepening cuts” is helping oil prices, said Nitesh Shah, commodities director at asset management firm ETF Securities. But Iraq “hasn’t complied with its portion of the quota since this started so [prices] could come off very quickly,” he cautioned. While Iraq’s crude production dropped by 10,000 barrels a day in August, its compliance rate was “still comparatively low,” at 39%, according to a recent report from the International Energy Agency. Iraq’s oil minister maintains that his country is “fully compliant” with the deal.

OPEC and non-OPEC participants will gather in Vienna on Friday to review compliance with the deal, though investors and analysts widely expect that any decision on further cuts won’t come until OPEC’s official annual meeting in November.

Have a great day,

Loren R. Bailey, President
Fuel Manager Services Inc

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