Instead of fundamentals, crude is being carried higher by vague hopes that OPEC, Russia and other major oil producers will agree to “freeze” production. Brent crude had threatened to break below $40 per barrel at the end of July.
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“With Russia joining the chorus, an array of bullish oil ETFs saw a sizeable influx of capital that lifted crude values by more than $5 a barrel off recent lows”, said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates. Since hitting a four-month high at 97.62 in late-July, the Dollar has retreated by approximately 2%.
Iraq, Opec’s second largest producer, which in April was saying it would support the deal, has since agreed with oil majors on new contract terms to develop its massive fields, which will allow output to rise further next year by up to 350,000 bpd. Oil watchers warn that prices could be getting ahead of themselves.
At around 0700 GMT, US benchmark West Texas Intermediate for delivery in September was down 36 cents, or 0.79 percent, to $45.38 and Brent crude for October dropped 41 cents, or 0.85 percent, to $47.94.
In the April-June period, Seoul imported 25.35 million barrels of Iranian crude oil, or 278,615 bpd, 123.3 per cent above the 11.35 million barrels imported a year earlier when sanctions were imposed on Tehran’s disputed nuclear programme. Saudi Arabia, the biggest producer among members of the Organization of the Petroleum Exporting Countries, is historically seen as the de facto leader of the oil cartel.
Iran’s spokesperson said on Tuesday that they haven’t decided whether they’ll join the meeting in September. “Saudi Arabia signaled that it is prepared to discuss stabilizing the markets at informal OPEC discussions next month”, ANZ bank said.
Oil’s rally has extended for a fifth day, helped by a weaker USA dollar and an unexpected drawdown in U.S. crude and petrol but traders said the runup may not last, pointing to galloping Saudi output and technical factors. Concurrently it anticipates non-OPEC production will fall by 790,000 barrels per day widening the demand gap.
Saudi Arabian Energy Minister Khalid al-Falih said on August 14 that Riyadh would work with OPEC and non-OPEC members to help stabilize oil markets.
But this is not the first time that hopes of a freeze has driven mini rallies in oil.
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“I think the U.S. inventory data will show a greater glut in products which would weigh on sentiment”, a Singapore-based trader said, adding that strong July Opec production figures would weigh on prices.
