Oil prices rise as big pro­duc­ers plan to dis­cuss out­put

The Pak Banker - - MARKETS/SPORTS -

Oil prices rose above $40 a bar­rel on Wed­nes­day, driven by an­tic­i­pa­tion that the world's largest ex­porters could agree this month to freeze pro­duc­tion and help erode the largest global build in un­wanted crude in years.

Pro­duc­ers in and out­side the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries plan to meet in Moscow on March 20 to dis­cuss an out­put freeze, an Iraqi oil of­fi­cial told state news­pa­per AlSabah. Brent crude fu­tures LCOc1 rose 62 cents to $40.27 a bar­rel by 0930 GMT (04:30 a.m. EST), hav­ing touched three­month highs on Tues­day above $41, while U.S. crude fu­tures CLc1 were up 49 cents at $36.99. "The con­sen­sus is for sup­ply and de­mand to im­prove in the se­cond half of the year. The prob­lem was al­ways with the first half .. which is heavy," Petro­ma­trix crude oil strate­gist Olivier Jakob said. "Add all this mo­men­tum for ac­tu­ally in­creased talks be­tween OPEC and non-OPEC - if there is a freeze agree­ment of some sort, then it could (form) the bridge to the tighter sup­ply/de­mand bal­ance in the se­cond half, so I think that has def­i­nitely helped to sup­port prices."

Oil prices have risen by around 25 per­cent since Saudi Ara­bia, Qatar, Venezuela and non-OPEC ex­porter Rus­sia said in mid-Fe­bru­ary they would leave sup­ply at Jan­uary's lev­els if there was enough sup­port from other pro­duc­ers.

Ner­vous­ness is run­ning high in oilde­pen­dent na­tions whose bud­gets have been tat­tered by the drop in prices, such as Al­ge­ria, which warned the re­cov­ery in crude was "very un­sta­ble" and could re­verse. Credit rat­ings agency Moody's warned of the po­ten­tial for more cur­tail­ments to out­put from de­faults aris­ing from the low oil price, which in Jan­uary was at its weak­est in nearly 13 years.

An­a­lysts at Bern­stein said poor eco­nom­ics could lead to more oil­field clo­sures. "Only two months into 2016 we find cu­mu­la­tive shut-in pro­duc­tion has al­ready reached 60,000 bpd (bar­rels per day) and up to 260 mil­lion bar­rels of re­serves," Bern­stein said, adding th­ese fields were in Nor­way, Colom­bia, Brazil, China and East Ti­mor.

An­a­lysts said fall­ing U.S. out­put was lend­ing sup­port al­though con­cerns over slow­ing de­mand and a global pro­duc­tion and stor­age over­hang were cap­ping any po­ten­tial for big­ger price gains.

En­ergy con­sul­tancy Wood Macken­zie said it ex­pected "the an­nual av­er­age price for 2016 to be lower than 2015 and then re­cover in 2017, re­flect­ing large over­sup­ply and high stock lev­els dur­ing the first half of 2016."

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