Oil prices edge down from sharp rally with focus on US data

London (Aug 9)  Crude oil prices inched down Tuesday on profit-taking after a sharp rally overnight as investors were emboldened by the possibility that the world’s oil cartel may reconsider a production freeze at a meeting in late September.

On the New York Mercantile Exchange, crude futures for delivery in September CLU6, +0.02%  traded at $43 a barrel, down 2 cents, or about 0.1%. October Brent crude LCOV6, -0.15% on London’s ICE Futures exchange fell by 7 cents, or 0.2%, to $45.32 a barrel.

Qatar’s energy minister, Mohammed bin Saleh al Sada, the president of the Organization of the Petroleum Exporting Countries, said Monday the 14-member group will hold an informal meeting Sept. 26-28 at the International Energy Forum in Algeria.

Sada sounded a positive note about the crude-oil market, saying demand was expected to be strong in the second half of 2016, while the global petroleum supply would weaken.

Expectations for higher crude demand in the second half of 2016, coupled with a decrease in availability, are leading analysts to conclude the current bear market is only temporary, and oil prices will rise later in the year, he said.

Several OPEC members want to revive the idea of setting new limits on production — a subject raised but quashed in April when cartel members met in Doha. At the time, Saudi Arabia said market forces were helping to reset supply and demand back toward a rebalance. Iran also rejected the idea, saying it would continue to produce until it reaches the pre-sanction level.

Now, Iran’s production has crept back up to 3.6 million barrels a day, almost 600,000 barrels a day higher since world powers lifted economic restrictions over the country’s nuclear program in January. That brings production to within reach of 4 million-4.2 million barrels a day that Iranian officials said they would require before agreeing to a freeze.

Some analysts say that with prices in the doldrums for two years, just the suggestion of talks was enough for investors to shrug off disappointing China crude imports in July, China’s imports plunged to the lowest level in six months.

“The market seems willing enough to take this as a bullish development and perhaps this time will be different,” said Citi energy futures analyst Tim Evans. “But we note that without the support of Saudi Arabia all prior efforts at a production freeze amounted to nothing.”

Skeptics fear the meeting won’t result in any concrete actions, as these members could have reduced production when prices were lower in the past months, but chose not to.

“They talk more than they do,” said Vivek Dhar, commodities strategist at Commonwealth Bank of Australia.

In the near term, the market will be monitoring movements of U.S. gasoline and crude stocks movements, which likely shrunk last week by 1.6 million barrels and 1.75 million barrels, respectively, according to a survey of analysts by S&P Global Platts.

Such a decline in crude would be 27% short of the average 2.4-million barrel drop seen during this period during 2011-2015. Crude oil stocks were 36.6% above the five-year average through the last reporting period.

Official data from the Energy Information Administration will be released Wednesday.

Nymex reformulated gasoline blendstock for September RBU6, -0.54% — the benchmark gasoline contract — fell 0.1% to $1.36 a gallon.

Source: MarketWatch