OPEC ‘agreement seems some way off, if not impossible’: analyst
Oi futures fell on Monday, as investors locked in their profits on growing expectations that the U.S. Federal Reserve could raise interest rates as early as next month and a group of major crude producers may fail to come up with a pact to stabilize output.
On the New York Mercantile Exchange, October West Texas Intermediate crude CLV6, -1.87% shed 67 cents, or 1.4%, to $46.97 a barrel, while October Brent crude LCOV6, -1.64% on the ICE Futures exchange in London erased 61 cents, or 1.2%, to $49.31 a barrel.
Federal Reserve Chairwoman Janet Yellen on Friday signaled growing conviction that the central bank will raise short-term interest rates in the weeks or months ahead.
A rise in U.S. interest rates usually does not bode well for oil prices, which are priced in the greenback. Higher interest rates could push the dollar higher, making oil products more expensive for traders who hold a different currency. The ICE dollar index DXY, +0.23% rose 0.2% Monday, building on a 0.8% rise from Friday.
“A much stronger U.S. dollar is causing selling pressure,” said analysts at Commerzbank in a note. “Speculative financial investors in particular are likely to use this as an opportunity to take profits,”
A key driver for the oil markets in the coming weeks would be any new rhetoric from members of the Organization of the Petroleum Exporting Countries, who are slated to have an informal meeting late next month to discuss the oil markets.
“The market will be in a wait-and-see mode until the meeting, even though the general expectation is that OPEC will do a lot of talking but not much doing,” said Aaron Lynch, an energy analyst at OptionsXpress.
The low expectation from OPEC is mostly a result of several failed attempts in the past when the group couldn’t come to an agreement on how to stimulate the prices.
When prices dropped to a 13-year low in February, four oil majors, including OPEC kingpin Saudi Arabia, floated the idea of a production freeze. However, the suggestion never came to fruition because Iran refused to go along with a production limit. Iran’s rejection prompted Saudi Arabia to back out of the deal at the last minute.
“The peak crude oil demand season for this year is now over and by the end of next months—i.e. when OPEC meetings ‘informally’ in Algiers—U.S. demand for crude oil will have dropped by around 1.0” million barrels a day, wrote Stephen Schork, editor of The Schork Report.
And analysts say even though prices are still in the doldrums compared with the above-$100 level see in mid 2014, the steady uptrend seen in the past few months could give Saudi Arabia more justification to leave prices alone, dousing any possibility of a production freeze.
“An agreement seems some way off, if not impossible,” said Stuart Ive, a client manager at OM Financial.
Back on Nymex, petroleum-product prices traded lower along with oil. September gasoline RBU6, -3.08% lost 3.6 cents, or 2.4%, to $1.477 a gallon and September heating oil HOU6, -1.37% fell 2 cents, or 1.3%, to $1.478 a gallon.
September natural gas NGU16, +0.31% which expires at the day’s settlement, edged up by 1.9 cents, or 0.7%, to $2.89 per million British thermal units. October natural gas NGV16, +0.14% which becomes the front-month contract, traded at $2.921 per million Btus, up less than a penny.
–Sara Sjolin contributed to this report.