Oil futures rally on fresh hopes for a production freeze
London (Aug 15) Crude climbed on Monday on hopes that low prices will drive major oil producers to reconsider a collective production freeze in a bid to boost the market.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in September CLU6, -0.04% jumped 54 cents, or 1.2%, to $45.03 a barrel. October Brent crude on London’s ICE Futures exchange LCOV6, -0.02% rose 49 cents, or 1%, to $47.45 a barrel.
Prices have hovered around a three-week high since Saudi Arabia’s energy minister Khalid al-Falih last week signaled his country was open to measures to stabilize the market, which has been beleaguered by oversupply for two years. 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.
The 14-member bloc is scheduled to meet at an informal gathering late next month.
The idea of a production freeze was pitched in April, but was later quashed when Saudi reneged its position at the last minute after Iran said it was not going to be onboard with the plan. The suggestion for a production freeze had come around three months after sanctions against Iran were lifted and production was around 3.45 million barrels a day, based on OPEC’s monthly report.
But with Iran’s production now up to 3.63 million barrels a day in July, closer to its 4 million barrels a day pre-sanction levels, some analysts say the country could be more inclined to agree to a freeze.
“Any measures to boost prices will be favorable to Iran, but the question is how to do you get everyone to agree?” said Aaron Lynch, a commodities analyst at OptionsXpress, speculating promises to freeze or scale back production, if any, would not materialize as members are more concerned about expanding their market shares.
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Prices have also been bumped up by bullish forecasts by the International Energy Agency, which on Thursday said the bulging global inventories of crude will erode, thanks to strong demand.
However, with the number of active oil rigs in the U.S. rising steadily — up 15 last week to 396 — headwinds against prices remain strong.
“If rising U.S. inventories were a concern during the previous oil price retrenchment seen in June and July, there was little respite from the most recent data which showed continuation of the rising trend to a record high,” said investment bank J.P. Morgan in a note.
Nymex reformulated gasoline blendstock for September RBU6, -0.97% — the benchmark gasoline contract — rose 1 cent, or 0.7%, to $1.38 a gallon.
Source: MarketWatch
