Low crude prices turn up pressure on OPEC

Brent crude (NYMEX:SCZ14) advanced on speculation that the drop in prices below $80 a barrel for the first time in four years increases the likelihood that OPEC will curb output. West Texas Intermediate (NYMEX:CLZ14) rose in New York.

Futures increased as much as 2.4% in London and 1% in New York. OPEC ministers have stepped up their diplomatic visits before the group’s Nov. 27 meeting, potentially seeking a consensus on how to react to oil prices that have plunged to a four-year low. Prices may slide further in the coming months as the market enters a period of weaker demand, the International Energy Agency said today.

Oil has collapsed into a bear market after leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production and the U.S. shale boom lifted output to the highest level in three decades. Brent is heading for its eighth weekly decline, the longest retreat since the contract began trading in 1988.

“Brent falling below $80 yesterday and WTI falling below $74 has certainly gotten the attention of OPEC,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “We’re watching them descend into panic mode, rushing from capital to capital in search of an agreement. They may cobble together something before the meeting but I’m still skeptical that they will.”

Brent, WTI
Brent for January settlement climbed $1.54, or 2%, to $79.03 a barrel on the London-based ICE Futures Europe exchange at 9:09 a.m. in New York. The December contract expired yesterday after losing $2.46 to $77.92, the lowest close since September 2010. The volume of all futures traded was 24% above the 100-day average for the time of day.

WTI for December delivery climbed 53 cents, or 0.7%, to $74.74 a barrel on the New York Mercantile Exchange. The contract lost $2.97 to $74.21 yesterday, the lowest settlement in more than four years. Volume was 53% higher than the 100-day average. The January WTI contract traded at a $4.32 discount to Brent for delivery the same month.

Libya Prime Minister Abdullah al-Thani flew to Riyadh yesterday just as Iraq President Fouad Masoum left the kingdom after a two-day visit where he met with King Abdullah, the official Saudi Press Agency reported. Rafael Ramirez, Venezuela’s foreign minister and representative to OPEC, held talks in Algeria and Qatar. Saudi Arabia Oil Minister Ali Al- Naimi toured Latin America.

Share Burden
“The Saudis will not walk the road alone, they want to see everyone share the burden with them,” Kuwait-based analyst Kamel al-Harami said by phone. Saudi Arabia, the world’s biggest oil exporter, is trying to build consensus among fellow OPEC members before they meet Nov. 27 in Vienna, he said.

Supply-demand balances suggest that the price rout has yet to run its course, the IEA said in its monthly report today.

“Downward price pressures could build further in the first half of 2015. Pressure on OPEC to reduce production is building,” it said.

The 12-member group would need to reduce production by between 1 million and 1.5 million barrels a day to shake off the negative sentiment in the market, BNP Paribas SA said yesterday in an e-mailed report.

Russia is preparing for a “catastrophic” slump in oil prices, which it can weather thanks to a cushion of more than $400 billion in reserves, President Vladimir Putin said.

“We’re considering all the scenarios, including the so- called catastrophic fall of prices for energy resources, which is entirely possible, and we admit it,” Putin said in an interview with the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today.

WTI, which is heading for the longest run of weekly declines since 1986, may extend its drop next week, said 11 of 22 analysts and traders in a Bloomberg survey. Seven respondents, or 32%, predicted that futures will gain while four expected little change.

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