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Brent crude oil trades near level seen as OPEC test

20 October 2014 16:59 (UTC+04:00)
Brent crude oil trades near level seen as OPEC test

By Bloomberg

Brent crude traded for a fifth day close to a level that's prompting speculation OPEC will respond by cutting supply. West Texas Intermediate, which fell into a bear market this month, was little changed.

Brent, the global benchmark, rose or fell through its closing level at least 12 times in trading on the London-based ICE Futures Europe exchange. It traded at $85.82 a barrel at 11:54 a.m. and has been near $85 since Oct. 15. Iran's President Hassan Rouhani instructed the oil ministry to use diplomacy to halt the slide, state-run Mehr news agency reported yesterday

"Iran underscores unease among producers about current prices," Michael Hewson, a London-based market analyst at CMC Markets Plc, said by phone. "None of the big OPEC producers can afford oil at less than $85 a barrel for any length of time."

Banks including BNP Paribas SA and Bank of America Corp. predict prices are near a floor, in part counting on the Organization of Petroleum Exporting Countries to reduce output. Goldman Sachs Group Inc. said Oct. 17 that a rout in oil had gone too far. Saudi Arabia and Kuwait started cutting output from a joint oil field on Oct. 16.

Brent for December settlement fell as much as 0.6 percent in London. It's premium to WTI was $3.72.

Iranian Diplomacy

WTI for November delivery, which expires tomorrow, rose as much as 73 cents to $83.48 a barrel in electronic trading on the New York Mercantile Exchange and was unchanged at 11:58 a.m. The more-active December contract was down 3 cents at $82.03. Front- month prices have lost 16 percent this year.

Some OPEC members require an average Brent price that's higher than where it's currently trading in order to balance their budgets, according to Deutsche Bank AG. Venezuela needs an average price of $162 a barrel this year, while Saudi Arabia's break-even price is $99.20, London-based analyst Robert Burgess said in an Oct. 17 report.

Rouhani told Iranian Oil Minister Bijan Namdar Zanganeh to use the "oil diplomacy tool" to try to prevent further decreases, vice president for planning and strategic supervision Mohammad Bagher Nobakht said, according to a Mehr report. Zanganeh made proposals after the president's request, Nobakht said, without giving details.

Saudi, Kuwait

Saudi Arabia and Kuwait have signaled the fall in prices doesn't warrant immediate production cuts. OPEC's 12 members, which pump about 40 percent of the world's oil, are scheduled to meet on Nov. 27 in Vienna.

The 300,000 barrel-a-day Khafji field, located in the neutral zone between Saudi Arabia and Kuwait, was being shut due to environmental concerns, a person familiar with Saudi oil policy said on Oct. 17, asking not to be identified because the information isn't public.

WTI lost 23 percent from its June peak amid rising supplies from the U.S. and OPEC producers. The decline met a common definition of a bear market on Oct. 10. U.S. output accelerated for a second week to 8.95 million barrels a day, the most since June 1985, according to the Energy Information Administration. Crude inventories expanded by 8.92 million barrels to 370.6 million in the week ended Oct. 10, the highest level since July.

Market Share

Rising OPEC output has prompted speculation its members are fighting for market share. The group pumped 30.47 million barrels a day in September, the most since August 2013, its monthly report on Oct. 10 showed.

Iraq, the group's second-largest producer, plans to raise November crude exports from the Basrah Oil Terminal by 400,000 barrels a day to 2.83 million, according to a preliminary loading program. That's the most since at least 2012, when Bloomberg started tracking data.

Money managers cut net-long positions on WTI by 8.1 percent in the week ended Oct. 14, data from the U.S. Commodity Futures Trading Commission data show. Short positions rose to the highest level in 22 months.

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