Oil nudges above $50 as Opec tries to slow the flow of crude
Oil rose to its highest since August, nudging above $50 a barrel, yesterday after a planned production cut by Organization of the Petroleum Exporting Countries (Opec), the group representing big exporting economies.
Despite the gains, analysts said the stubbornness of the existing supply overhang could temper a longer-lasting rally.
December Brent crude futures were last up 40 cents at $50.59 a barrel by 1200 GMT, off a session low of $49.74, while US crude futures rose 42 cents to $48.66 a barrel, above the day's low at $47.78.
Europe's and Asia's largest markets, Germany and China, were both shut for public holidays yesterday, limiting trade.
The Opec said last week it would cut output to between 32.5 million barrels per day (bpd) and 33.0 million bpd from about 33.5 million bpd, with details to be finalised at its policy meeting in November.
Initial scepticism last week over the effectiveness of the deal in eroding the global surplus gave way to a wave of short-covering that drove the price above $50 a barrel for the first time since late August yesterday.
"The lukewarm response to the Opec deal from analysts (rightfully so) probably attracted some premature selling, with technical traders currently in the driving seat. Oil always runs ahead of itself and this time round is no exception," Saxo Bank manager Ole Hansen said, referring to the price rally.
Aside from doubts over Opec implementing a final production-cutting deal, those bearish in the market also note the rise in oil output from member countries to a multi-year high in recent months, including exports from Iran that at 2.8 million bpd are close to their 2011 pre-sanctions peak.
Opec's oil output is likely to reach 33.60 million bpd in September from a revised 33.53 million bpd in August, its highest in recent history, a Reuters survey found on Friday.
"Sentiment has been slightly dented by the Reuters survey, showing that despite agreeing to cut production Opec pumped crude in record amounts through September," said Jeffrey Halley, senior market analyst at brokerage OANDA in Singapore.
Data last week from the US Commodity Futures Trading Commission showed money managers raised their net long holdings of US crude futures in the week to September 27.
Analysts said there was downside risk to oil prices if the planned cut was not deep enough to bring production back in line with consumption.
"Opec has created its own Q4 risk to oil prices... In raising expectations of a November deal to cut production, it also risks a steep price decline should it fail to achieve its goal of cutting output back to less than 33 million bpd," Barclays said in a note to clients.
The market scepticism stems from the fact that Opec production has so far chased new records for much of this year as rivalling members like Saudi Arabia, Iran and Iraq are reluctant to give away market share. Despite that, the British bank said that it did not expect a repeat of the price crash seen late last year after a rally earlier in 2015.
"We think oil prices, and commodities more generally, will avoid the Q4 price crash that has become a feature of the market in recent years," it said, pointing to an improving Asian economic growth outlook, falling oil supplies and rising investor interest in oil markets as main support factors for this year. (Reuters)