Oil Caps Biggest Weekly Decline Since January on OPEC Doubts

(Bloomberg) -- Oil capped the biggest weekly loss in almost 10 months as hopes faded that OPEC will be able to implement a promised deal to cut production and ease global oversupplies.

Futures dropped 1.3 percent in New York, bringing the six-session decline to 11 percent. Prices closed Thursday at the lowest level since OPEC reached a preliminary accord in Algiers for the cuts, and extended losses Friday after Reuters reported that Saudi Arabia threatened to raise output if other members didn’t agree to cuts. Losses eased after OPEC Secretary-General Mohammed Barkindo said the kingdom didn’t make the threat.

Oil has retreated below $45 a barrel this week following OPEC’s failure on Oct. 28 to agree on output quotas for member countries, which must happen before a deal can be finalized. While Goldman Sachs Group Inc. sees little probability of an agreement at a Nov. 30 meeting, Bank of America Merrill Lynch and Citigroup Inc. say an accord is likely. OPEC pumped a record 34.02 million barrels a day in October, according to Bloomberg estimates.

"We’re not seeing any path for an OPEC agreement," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "There’s too much output growth in OPEC outside of Saudi Arabia. It’s asking too much of Saudi Arabia and its Gulf allies to make the cuts needed for this to work."

West Texas Intermediate for December delivery dropped 59 cents to settle at $44.07 a barrel on the New York Mercantile Exchange. It’s the lowest close since Sept. 20. Total volume traded was 28 percent above the 100-day average at 2:47 p.m. Prices slipped 9.5 percent this week, the most since the period ending Jan. 15.

OPEC Limits

Brent for January settlement fell 77 cents, or 1.7 percent, to $45.58 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since Sept. 1. Prices dropped 8.3 percent this week. The global benchmark ended the session at a 93-cent premium to January WTI.

Though no agreement on quotas was reached at last week’s meeting in Vienna, the Saudi "contributions, as usual, were constructive,” Barkindo said Friday.

"After Barkindo’s comments there’s less concern that we will sink into an all-out price war," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "The closer we get to an actual decision on production cuts, the more nervous the market will get."

Naimi’s Thoughts

OPEC alone can’t cut output to stabilize the market, Ali Al-Naimi, the former Saudi Arabian energy minister who masterminded the pump-at-will policy the group adopted two years ago, said Friday. While he stood by the November 2014 decision that led OPEC members to keep pumping full-out, triggering a price collapse, he said the situation has changed as other producers, including Russia, are talking to the group about coordinated cuts.

“Given the recent weakness in price, perhaps the market is losing faith in what they can effectively deliver,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “It is a long road from Algiers to Vienna, and some countries like Iraq are already taking an exit from participating in cuts. What OPEC may ultimately deliver risks falling short of what is required.”

Iraq’s Kurds say their oil production in September was 290,000 barrels a day lower than the federal government’s figures for the semi-autonomous region, as OPEC’s second-biggest member tries to resolve accounting differences with the producer group over its output. Iraq increased output by 50,000 barrels a day to a record 4.59 million barrels a day and asked to be excluded from mandated cuts because it’s embroiled in a war with Islamic militants.

Libya, Nigeria and Iran, which already have been exempted from the OPEC deal, pumped an additional 400,000 barrels a day in October, according to the Bloomberg News survey of analysts, oil companies and ship-tracking data.

December gasoline futures fell 3.2 percent to $1.3786 a gallon, the lowest close since Sept. 23. Diesel for December delivery declined 1.9 percent to $1.4303, the lowest settlement since Sept. 27.

Oil-market news:

• Rigs targeting crude in the U.S. rose by 9 to 450, the highest level since February, Baker Hughes Inc. said on its website Friday.
• Oil producers in the North Sea are poised to ship in December the most crude in more than four years, according to data compiled by Bloomberg.
• Colonial Pipeline Co. said it’s on target for a Sunday restart of the pipeline’s 1.3 million-barrel-a-day main gasoline line.
• U.S. crude stockpiles rose by 14.4 million barrels last week as imports surged the most in almost 20 years, according to an Energy Information Administration report Wednesday.

--With assistance from Grant Smith and Angelina Rascouet To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Susan Warren, Carlos Caminada