Oil prices fall as strong dollar wipes out OPEC cut optimism

The Organization of the Petroleum Exporting Countries (OPEC) is moving closer to finalizing its first deal since 2008 to limit output, with most members prepared to offer Iran flexibility on production volumes, ministers and sources said.

In September, OPEC agreed to trim output to 32.5 million-33 million barrels per day, down from 33.64 million barrels a day in October to help rebalance oil markets.

Oil has retreated since reaching a 2016 high last month near US$52 a barrel amid scepticism about the ability of Opec to implement a deal at a meeting on November 30.

“Oil traded in a sideways range overnight, as stronger USA dollar (overshadowed) optimism from Saudi’s Energy Minister over a production cut agreement”, said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore. While Iran strongly commits to boost its production to pre-sanction levels, Iraq wants to be exempted from any production cuts as the country funds heavily for the war against Islamic State militants.

OPEC’s Secretary General Mohammed Barkindo has said he is confident that its decision to limit the group’s output will reduce inventories and bring forward a balancing of the crude market. The Energy Information Administration said Wednesday that US stocks of crude oil jumped 5.3 million barrels last week, although the impact was cushioned by a fall in output and increased capacity utilization by refineries. Any cut is likely to help profitability for US producers.

We advise initiating longs in the June’17 Brent 55-60 call spread at $1.91/bbl.

“The exports figures suggest that they will not give up a critical card that they are going to use in the OPEC negotiations to freeze or reduce OPEC production before they reach such an agreement at the November meeting”. Russian Federation will hold discussions with representatives from the Organisation of Petroleum Exporting Countries in Doha from Thursday, Energy Minister Alexander Novak said. January Brent futures LCOc1 were up 31 cents, or 0.7 percent, at $44.74 per barrel.

“Headlines around increasing OPEC production remained prevalent, although the focus switched to final diplomatic efforts from nations to agree to a production cut”.

USA crude was up 29 cents, or 0.6 percent, at $46.11 a barrel, while Brent crude rose 26 cents, or 0.5 percent, to $47.21 a barrel, as of 10:51 a.m. EST (1551 GMT).

“We have evidence of oversupply – USA stocks rising – versus hopes for some action by OPEC”. Jefferies expects Brent to average $58 a barrel next year.