West Texas Intermediate rebounded after closing at the lowest price in more than five years amid competition between OPEC’s largest members, Iraq and Saudi Arabia. Brent was little changed in London.
Futures rose 0.5 percent in New York, reversing an earlier loss of 1.3 percent. Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, reduced its Basrah Light crude price for January to the lowest in at least 11 years yesterday. WTI will average in the “high sixties” in the first half of next year, with Brent in the “low seventies,” Amrita Sen, chief oil market analyst at consultant Energy Aspects, said at a Platts conference in Dubai.
Crude is trading in a bear market as the highest U.S. production in three decades exacerbates a global glut. Saudi Arabia, which led OPEC’s decision to maintain rather than cut output at a Nov. 27 meeting, last week offered supplies to its Asian customers at the deepest discount in at least 14 years.
“After yesterday’s solid fall, it’s no surprise that oil is taking a small breather,” Bjarne Schieldrop, chief commodities analyst at Oslo-based SEB, said by e-mail. “The market will remain volatile until it finds the Goldilocks price that dampens U.S. shale oil supply growth, stimulates the global economy and still lets OPEC members survive.”
WTI for January delivery increased as much as 41 cents, or 0.7 percent, to $63.46 a barrel in electronic trading on the New York Mercantile Exchange, before trading at $63.25 at 9:36 a.m. London time. The contract lost $2.79 to $63.05 yesterday, the lowest close since July 2009. Total volume was about 41 percent above the 100-day average for the time of day.
Mideast Discounts
Brent for January settlement was little changed at $66.20 a barrel on the London-based ICE Futures Europe exchange. It slid $2.88 to $66.19 yesterday, the lowest close since September 2009. The European benchmark crude traded at a premium of $2.90 to WTI. Prices are down 40 percent this year.
“The Iraqi cut is just an indication of the ongoing ‘price war’,” Eugen Weinberg, head of commodities research at Frankfurt-based Commerzbank AG, said by e-mail. “OPEC is currently thinking more in terms of market share and doesn’t care so much about pricing.”
Iraq’s Oil Marketing Co. will sell Basrah Light to Asia at $4 a barrel below the average of Middle East benchmark Oman and Dubai grades, the steepest discount since August 2003 when Bloomberg started compiling the data. The company reduced prices to U.S. buyers by 30 cents and marked up shipments to Europe by 10 cents, the list obtained by Bloomberg News showed.
Middle East producers including Iraq, Iran and Kuwait typically follow Saudi Arabia’s lead when setting crude export prices. The kingdom is the biggest member of OPEC, which supplies about 40 percent of the world’s crude.
“Oil prices will stay around the current level of $65 for six or seven months until OPEC changes its production policy, or recovery in world economic growth become more clear, or a geopolitical tension arises,” Nizar Al-Adsani, Kuwait Petroleum’s chief executive officer, said yesterday. The nation is the third-largest among OPEC’s 12 members.
OPEC Quota
Market fundamentals don’t warrant a price as low as $60 a barrel, even with an oversupply, said Sen of Energy Aspects. OPEC may call an extraordinary meeting in the first quarter of next year to discuss production levels again, she said.
The group pumped 30.56 million barrels a day in November, exceeding its collective target of 30 million for a sixth straight month, according to a Bloomberg survey of companies, producers and analysts.
The U.S. oil boom, driven by a combination of horizontal drilling and hydraulic fracturing, has unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota. Production increased to 9.08 million barrels a day through Nov. 28, the fastest rate in weekly records that started in January 1983, data from the Energy Information Administration showed.
Crude stockpiles in the country, the world’s biggest oil consumer, probably shrank by 2.5 million barrels last week, according to the median estimate in a Bloomberg survey of seven analysts. That would be a second weekly drop.
To contact the reporters on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net James Herron, Rachel Graham
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