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NYMEX Crude $ 45.74 UP $1.2500
NY Harbor ULSD $1.4499 UP $0.0413
NYMEX Gasoline $1.4007 UP $0.0298
NEWS
Oil futures settled higher Monday as bets that the prolonged price rout may drive major producers to reconsider a collective production cap lifted prices to their highest level in about a month.
On the New York Mercantile Exchange, September West Texas Intermediate crude added $1.25, or 2.8%, to settle at $45.74 a barrel—the highest settlement since July 15. October Brent crude rose $1.38, or 2.9%, to $48.35 a barrel on London’s ICE Futures exchange, the highest level since July 12. Prices have found support since Saudi Arabia Energy Minister Khalid al-Falih last week signaled his country was open to measures to stabilize the market, which has been beleaguered by oversupply for two years. Saudi Arabia, the biggest producer among members of the Organization of the Petroleum Exporting Countries, is historically seen as the de facto leader of the oil cartel. OPEC members are scheduled to meet at an informal gathering late next month.
On Monday, Russian Energy Minister Alexander Novak said his country is consulting with the Saudis and other producers to jointly cap production “if necessary,”according to Arabic newspaper Asharq al-Awsat. The news shouldn’t be dismissed, “as the major players seem to be on board—the ones that really matter and that should allow for a deal to get done,” said Phil Flynn, senior market analyst at Price Futures Group, in a note. “Saudi Arabia wants to make amends for their Doha disaster and so they are trying to rebuild their diplomatic credibility.” “An agreement may be critical as the market is worried about the potential impact of the shoulder season in oil,” he said. The market fears that when “refiners go to maintenance, we will see a resumption of crude oil builds driving to record highs.”
The idea of a production cap was pitched in April, but no agreement was reached, leading some analysts to doubt whether the September meeting will bear fruit. Colin Cieszynski, chief market strategist at CMC Markets, told MarketWatch that he doesn’t see anything really different this time around with the talk of an output freeze, “but it’s been a good excuse for a rally.”
One potential change since the April meeting is Iran’s position, as the country has now lifted its production to 3.63 million barrels a day in July, from around 3.45 million barrels a day three months earlier, based on OPEC’s monthly report. Iran is working toward its 4 million barrels-a-day pre-sanction production levels. “Any measures to boost prices will be favorable to Iran, but the question is how to do you get everyone to agree?” said Aaron Lynch, a commodities analyst at OptionsXpress. He speculated that promises to freeze or scale back production, if any, wouldn’t materialize as members are more concerned about expanding their market shares.
Prices have also been bumped up by bullish forecasts by the International Energy Agency, which on Thursday said the bulging global inventories of crude will erode, thanks to strong demand. However, with the number of active oil rigs in the U.S. rising steadily —up 15 last week to 396—headwinds against increasing prices remain strong.
Meanwhile, a monthly report Monday from the Energy Information Administration said oil production from seven major U.S. shale plays is forecast to decline by 85,000 barrels a day to 4.47 million barrels a day September from August.