Oil rises on renewed OPEC output freeze talks, but fundamentals remain weak
SINGAPORE : Oil prices increased in early trading on Monday, lifted by reports of renewed talks by some members of the Organization of the Petroleum Exporting Countries (OPEC) to restrain output.
The price rise came on the back of renewed calls by some OPEC members to freeze production in a bid to rein in output that has been consistently outpacing demand. U.S. West Texas Intermediate crude futures CLc1 were at $41.90 per barrel, up 10 cents from their last close. Brent futures LCOc1 were trading at $44.34 per barrel, up 7 cents.
“OPEC members including Venezuela, Ecuador and Kuwait are said to be behind this latest reincarnation. But just like previous endeavors, it seems doomed to fail, given key OPEC members persist in their battle for market share, ramping up exports apace.” said Matt Smith of Clipper Data in a note.
Yet in the absence of an agreement, a fight for market share via high output and price discounts is still weighing on markets. Iraq has dropped the September official selling price for Basra Light crude to Asia by $1 to minus $2.30 a barrel against the average of Oman/Dubai quotes from the previous month, the State Oil Marketing Organization said on Monday, making it the latest exporter to drop its prices. Meanwhile, oil drilling in the United States keeps increasing.
“Another increase in the rig count in the U.S. also weighed on sentiment. The Baker Hughes data show rigs operating in the U.S. are the highest since March (at 381).” ANZ bank said. On the demand side, AB Bernstein said that oil demand growth had been strong in 2015 and the first half of this year, at 2.0 and 1.5 percent respectively, but that the outlook was weakening.
In July following the UK Brexit vote, the IMF downgraded global growth by 10 basis points (bp) in 2016 and 20 bp in 2017. This has negative implications for demand.” the analysts said, adding that they expected oil demand growth to slow to around 1.1 percent in the second half of 2016 and to below 1 percent next year.
Source : Reuters