Oil investors await Opec meeting optimistic on output deal chances

Iran and Iraq were said to still have reservations about curbing production as a technical meeting ended on Monday


Opec is also asking producers including Russia to lower output by as much as 600,000 barrels a day. Photo: Reuters
Opec is also asking producers including Russia to lower output by as much as 600,000 barrels a day. Photo: Reuters

New York: Oil investors approached this week’s Opec meeting more optimistic about the chances of an output cut.

Money managers increased wagers on rising prices to the highest in more than a month ahead of the Organization of Petroleum Exporting Countries’ meeting this week. Oil climbed on Monday as Iraq’s oil minister said he’s “optimistic” a deal to curb oil output will be reached at Wednesday’s talks in Vienna. Opec officials were said to remain divided at the end of a preliminary meeting Monday.

Rhetoric from Opec about a deal has been effective in supporting prices, said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Shorts got scared out of their position by the aggressive stance the Saudis have been taking over the past few weeks. The market’s been giving the group the benefit of the doubt.”

Investors increased long positions, or bets on higher West Texas Intermediate crude prices, by 22,304 futures and options during the week ended 22 November, according to the Commodity Futures Trading Commission. Bets on higher Brent prices jumped the most in seven weeks, ICE Futures Europe data show.

WTI futures rose 4.8% to $48.03 a barrel in the report week. The US benchmark fell 0.6% to $46.80 at 1:14 pm in Singapore.

Iran and Iraq were said to still have reservations about curbing production as a technical meeting ended Monday. Iran boosted its crude sales this year after sanctions on its nuclear program were lifted.

The talks followed Saudi Arabia suggesting for the first time that cutting supply may not be necessary. Last week, Saudi Arabia pulled out of a meeting with non-Opec members -- which was then cancelled -- saying Opec should resolve its internal divisions before negotiating with other producers.

Even odds

Saudi Arabia wants to see crude prices at or above $60 a barrel but doesn’t want to bear the brunt of the cuts, Energy Aspects Ltd chief Oil Analyst Amrita Sen said in a Bloomberg Television interview in Vienna on Monday. Chances of a deal remain “50-50,” and failure to reach an agreement could lead to a “sharp correction,” sending prices plunging into the $20s, she said.

Opec is also asking producers including Russia to lower output by as much as 600,000 barrels a day. Russia has offered to freeze production at its current level instead of reducing it. Algerian and Venezuelan energy ministers Noureddine Boutarfa and Eulogio Del Pino were said to be travelling to Moscow Monday to meet with Russian Energy Minister Alexander Novak.

Shorts, or wagers that WTI prices will fall, decreased by 2,699 contracts after growing the previous four weeks. The net-long position increased by 15%. In the Brent market, money managers increased bets on a rally by 29,124 contracts and reduced short positions.

In fuel markets, net-bullish bets on gasoline decreased 34% to 17,013 contracts, as futures climbed 5.6% in the report week. Money managers were net-long 3,359 contracts of ultra low sulfur diesel, from net-short 393 the previous week. Futures advanced 5.7%.

Brent has held around $50 a barrel even as the dollar traded near its strongest level since at least 2005, which typically weighs on commodities priced in the US currency.

The oil market “is treading into some dangerous waters” by ignoring the strength of the dollar and high inventories, said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “It’s levitating like this in the hope that Opec is going to come up with something meaningful.” Bloomberg

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