Organisation of Oil Exporting Countries

The Organisation of Oil Exporting Countries (OPEC) and Russia say they expect the global oil market to become more balanced and stable next year after the recent sharp drops.

OPEC’s secretary general, Abdullah al-Badri, said after talks with Russian Energy Minister Alexander Novak that he didn’t anticipate a further drop in prices.

OPEC decided in June not to cut production, in a bid to retain its share of the global market in the face of a boom in shale oil production in the U.S. Russia, which is not part of OPEC but is the world’s top crude producer and depends heavily on energy exports, hasn’t made any cuts either.

Oil prices fell to new multi-month lows Friday as data showed U.S. producers put more drilling rigs to work despite a lingering world-wide glut.

Many analysts and investors have warned for months that crude production could keep rising even amid massive cutbacks from U.S. producers. U.S. prices have fallen into bear market territory in recent weeks as that scenario has started to play out.

Now U.S. producers are putting more rigs to work. Baker Hughes Inc.’s weekly oil rig count rose by 5 to 664 this week, on top of a 20-rig increase last week. Combined with larger-than-expected production from the OPEC, the move shows how a glut of oil may persist despite the slide in prices over the past year, analysts said. “It’s just one more thing that adds to that bearish feel to the market,” said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. He said oil prices are likely to test their lows for 2015. Production “has really overwhelmed demand, even though demand is up.”

Money managers have retreated to their weakest bullish stance on oil in nearly five years, adding twice as many bearish bets as bullish bets in the week that ended Tuesday, according to data the Commodity Futures Trading Commission released late on Friday.

News of the added rigs and crude’s continued fall overshadowed signs that U.S. production may have peaked after all. The U.S. Energy Information Administration released data late Friday afternoon showing that the country’s oil production hit a 44-year high of nearly 9.7 million barrels a day in March and has declined to 9.5 million barrels in the two months since. Though the declines have been small, it is the first proof that production has peaked, a data point many traders have been seeking desperately.

The U.S. benchmark settled down $1.40, or 2.9%, to $47.12 a barrel on the New York Mercantile Exchange. Losses accelerated in the afternoon, especially after the rig-count data was released, and landed at their lowest settlement since March 20.

Brent, the global benchmark, fell $1.10, or 2.1%, to $52.26 a barrel on ICE Futures Europe, the lowest settlement since Jan. 29.

The losses put U.S. crude down nearly 21% for July. Brent lost nearly 18% for the month. Both had their worst month since December. The U.S. benchmark has finished lower in 21 of the past 27 sessions. Brent has posted losses in 11 out of the last 13 months.

High international supplies have kept prices under pressure and increased competition among producers who are taking cost-cutting measures. But few have ventured to cut production, and instead have targeted higher-producing wells and more efficient drilling techniques as they all fight to hold on to their customers and sell more oil, even at lower prices.

Comments by Abdalla Salem el-Badri, secretary-general of OPEC, on Thursday have done little to reassure the market that the oil glut will be tackled soon. Mr. el-Badri was in Moscow for talks with Russia’s energy minister, Alexander Novak. “OPEC shows absolutely no sign of blinking,” said David Hufton of PVM Oil Associates in London. He said the secretary-general believes an increase in oil demand will support prices and will absorb any additional oil exports from Iran. “Unfortunately for OPEC, the data, such as it is, does not support this view,” he added.

The world will be entering 2016 with a record high level of global stocks, and the average surplus is expected to be around 1.5 million barrels a day, he said.

Traders who move based on charts added to the push lower on Friday, said Ric Navy, senior vice president for energy futures at brokerage R.J. O’Brien & Associates LLC. Because oil prices weren’t able to rally off the multi-month lows they set earlier this week, it convinced many of those traders that a broader selloff was likely to continue, possibly pushing oil toward $44 a barrel very quickly, he added. “All the charts point lower,” Mr. Navy said.

Gasoline futures gained 1.31 cents, or 0.7%, to $1.841 a gallon.

The glut of crude has also spilled over into oil-products, especially diesel, which fell to a new six-year low on Friday. It has lost nearly 20% in three months, its worst three-month performance since the one that ended in January, pushing diesel futures to their lowest settlement since July 15, 2009.

Diesel futures fell 1.42 cents, or 0.9%, to $1.584 a gallon.

By Pita Ochai


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