Oil prices set to end week higher on output freeze, but glut looms
Oil prices slid on Friday but are set for their first weekly increase this month as talk of a coordinated plan by producers to freeze output levels was tempered by a record build in U.S. crude inventories.
Brent futures LCOc1 were down 35 cents at $33.93 a barrel by 0957 GMT, with U.S. crude CLc1 slipping by 36 cents to $30.41. Oil prices had risen by more than 14 percent earlier in the week on Saudi Arabia and Russia's agreement to freeze output at January levels.
While Iranian Oil Minister Bijan Zanganeh welcomed the plan, he fell short of committing to it and Iranian sources told Reuters that capping output is not enough to rebalance the market.
Saudi Arabia reiterated that it has no plans to cut output and will continue to protect its market share.
"If other producers want to limit or agree to a freeze in terms of additional production, that may have an impact on the market, but Saudi Arabia is not prepared to cut production," foreign minister Adel al-Jubeir told Agence France-Presse in an interview on Thursday.
Iraq's oil minister Adel Abdul Mahdi said on Thursday that talks would continue between OPEC and non-OPEC members to find ways to restore "normal" oil prices after a meeting in Tehran on Wednesday.
A record build in U.S. crude inventories last week stoked concerns over persistent global oversupply. Crude stocks rose by 2.1 million barrels to a peak of 504.1 million, data from the U.S. government's Energy Information Administration (EIA) showed on Thursday. "The market is expecting continuing inventory builds," said Tony Nunan, oil risk manager at Japan's Mitsubishi Corp in Tokyo. The recovery at the back end of the WTI curve this week is prompting U.S. shale producers, for the first time in months, to inquire and place new hedges to lock in 2017 prices of around $45 a barrel.
The activity reflects expectations of growing investor and lender pressure to safeguard heavy debt requirements down the road, as well as declining drilling costs, allowing companies to break even at lower prices.