Oil marks first loss in 5 sessions on doubts about OPEC deal

Published: Dec 6, 2016 3:33 p.m. ET

Analysts forecast a decline in weekly U.S. crude supply

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Oil futures finished lower Tuesday for the first time in five sessions, as some market surveys revealed further increases in crude production last month from the Organization of the Petroleum Exporting Countries, despite an agreement to cut back output starting in January.

“We’re now faced with the juxtapositioning of rising OPEC output versus promised cuts; something which could well become a recurring theme over the coming months,” said Matt Smith, director of commodity research at ClipperData.

Surveys conducted by Reuters and Bloomberg pegged output at a record level of just under 34.2 million barrels a day in November.

Read: OPEC deal may already be running into trouble, says this chart

On the New York Mercantile Exchange, January West Texas Intermediate futures CLF7, +0.16%  fell by 86 cents, or 1.7%, to settle at $50.93 a barrel. February Brent crude LCOG7, -1.91% the global oil benchmark, lost $1.01, or 1.8%, to $53.93 a barrel on London’s ICE Futures exchange. Both Brent and WTI posted gains in each of the last four sessions and on Monday, hit their highest levels since July 2015.

“We are seeing a combination of doubt that OPEC will follow through with the degree of cuts and profit taking ahead of [U.S.] inventory data drive this move off of the highs,” said Bill Baruch, chief market strategist at iiTRADER.

Read: Why U.S. shale producers are the biggest winners from OPEC’s oil deal

The Energy Information Administration will release its weekly data on U.S. petroleum supplies on Wednesday morning—after the American Petroleum Institute’s figures, which come out late Tuesday.

Analysts polled by S&P Global Platts forecast a decline of 1.7 million barrels for crude inventories. They also predict a rise of 900,000 barrels in gasoline stockpiles and an increase of 100,000 barrels for distillates, which include heating oil.

On Nymex, January gasoline RBF7, +0.55%  shed 2.2 cents, or 1.4%, to $1.536 a gallon and January heating oilHOF7, +0.21%  lost 1.9 cents, or 1.2%, to $1.638 a gallon.

January natural gas NGF17, -0.14%  settled with a loss of 1.9 cents, or 0.5%, at $3.635 per million British thermal units. It had touched an intraday high of $3.732, the highest since December 2014.

Doubts on OPEC

OPEC’s decision on Nov. 30 to implement a cut in output of 1.2 million barrels a day starting Jan. 1, equivalent to around 1% of global supply, triggered a rally in oil prices, which gained roughly 12% last week.

“Oil did what we expected to do, which is trade up, back within its [range] of $50 and $60,” said Nico Pantelis, head of research at Secular Investor. “Currently, the energy commodity is consolidating the previous $10 rise, and also loosing some steam as traders are starting to question the recent OPEC deal.”

Pantelis said he doesn’t expect this and other short-term data items “to have a big impact on the price, for which we foresee a further increase in the coming days and weeks, to the top of the new trading range, at $60 per barrel.”

Traders and analysts will keep a close eye on export volumes in the New Year for evidence of the production cuts as the cartel has a checkered history for complying with quotas.

“The initial reaction is understandably bullish but the question on everyone’s mind is how credible is last week’s agreement,” said Tamas Varga at brokerage PVM.

OPEC and nonmembers, including Russia, plan to meet Dec. 10. OPEC wants its non-OPEC counterparts to slash output by 600,000 barrels a day.

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Commerzbank cast doubt on such a deal partly because Saudi Arabia, the quasi-head of OPEC, appears to be waiting until January to seasonally adjust its production to its lower winter level, while also cutting its January selling price for Asian consumers, maintaining its strategy of defending market share.

“The latest surge in oil prices in the wake of OPEC’s meeting could therefore prove to have been too pronounced and is likely to correct at least to some extent,” the bank said in a note.

There is also a risk that the OPEC members who are exempt from the deal, Libya and Nigeria, may ramp up production faster than anticipated, offsetting cuts elsewhere.

Over in the U.S., the EIA raised its forecasts for domestic crude-oil production this year and for 2017 in a monthly report issued Tuesday. It forecast 2016 production at 8.86 million barrels a day, up from the previous forecast of 8.84 million. For next year, it predicts output of 8.78 million barrels a day, compared with the previous forecast of 8.73 million.

“U.S. monthly oil production could increase more quickly next year if OPEC’s recent decision to trim its output pushes the price of oil above $50 a barrel, which would encourage more investment in U.S. regions that have tight oil production,” said Adam Sieminski, EIA administrator, in a statement.

The EIA also increased its price forecasts for Brent and West Texas Intermediate crude oil for 2016 and 2017.

–Sarah McFarlane contributed to this article.

http://www.marketwatch.com/story/oil-prices-pull-back-as-investors-cash-in-on-one-year-highs-2016-12-06