Oil Gains Ground as Capacity Warnings Counter Russia Questions
(Bloomberg) -- Oil prices gained ground as traders weighed countervailing signals about how much OPEC and its allies can afford to trim production.
Futures in New York climbed 0.5 percent, after reversing direction multiple times Monday. The International Energy Agency noted spare output capacity in Saudi Arabia remains low. Russian Energy Minister Alexander Novak, meanwhile, said producers need to better understand current conditions before paring supplies, leaving the strategy for major oil exporters uncertain.
“You had the IEA reminding everyone that we still are fairly tight on spare capacity," said Ashley Petersen, an oil analyst at Stratas Advisors in New York. “It’s a bit of a slow news week so oil markets are going to latch onto anything they hear."
While crude markets are currently well supplied, extra capacity in Saudi Arabia, OPEC’s leading producer, remains “very thin," IEA Executive Director Fatih Birol said Monday at a conference in Slovakia. Longer term, “cutting the production significantly today by key oil producers may have some negative implications for the markets."
Russia’s wait-and-see approach threatened to open up a gap with Saudi Arabia, its partner in orchestrating supply cuts in recent years. The Saudis said earlier this month that producers may have to reduce as much as 1 million barrels a day to resuscitate a market that’s fallen into bear territory. U.S. benchmark crude notched its sixth straight week of losses last week.
OPEC ministers are scheduled to meet in Vienna on Dec. 6, with allies from outside the group joining talks the next day. In Moscow on Monday, Novak said he wants them to “make a balanced decision, and so far there are no criteria for it.”
“The statements from Russia have turned the market’s attention back to worries about slowing demand growth and excess supply" said Gene McGillian, senior analyst and broker at Tradition Energy in Stamford, Connecticut.
West Texas Intermediate for December delivery, which expires Monday, edged up 30 cents to $56.76 a barrel on the New York Mercantile Exchange at the close of trading. Total volume traded was 12 percent above the 100-day average. The more active January contract gained 52 cents to $57.20.
Brent for January settlement was little changed, rising 3 cents to $66.79 a barrel on London’s ICE Futures Europe exchange, and traded at a $9.59 premium to WTI for the same month.
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