Published: Mon, September 26, 2016
Economy | By Melissa Porter

Oil at six-week low as oversupply outweighs output freeze talks

OPEC may turn its planned informal meeting in Algiers next week into a formal session as it seeks ways with other producers to cut crude supplies by 1 million barrels a day to re-balance markets and stabilize prices, Algerian Energy Minister Noureddine Bouterfa said.

Brent crude, the global oil benchmark, rose 1.6% to $46.62 a barrel on London's ICE Futures exchange.

Venezuelan President Nicolas Maduro has said a deal could be announced this month to stabilize oil markets, which have come under pressure due to persistent oversupply.

Gulf Coast gasoline inventories, however, rose 4.8 million barrels last week, a record weekly build, to the highest level ever for this time of year at 83.7 million barrels, the EIA said, amid the shutdown of the 1.3 million barrel per day Colonial pipeline that runs from the Gulf to the East Coast.

Also, North Sea output became under threat as more than 300 Norwegian oil service workers went on strike after wage talks broke down.

USA oil (WTI) prices have edged up on hopes the planned restart of country's main petrol pipeline after a leak more than a week ago will boost demand, while Brent has slipped amid scepticism over a proposed deal to freeze production.

In recent weeks, oil prices have been low and investors are keenly watching mixed messages coming from OPEC and non-OPEC member states as they prepare to meet informally next week.

Analysts, however, remain skeptical of the ability of countries to reach an output freeze deal in late September, as some players of the market seek to reserve a right of production growth. Export data for August is not yet available. According to the API, inventory data showed a substantial draw of 7.5 million barrels of crude during the week-ended September 16.

Lower crude oil prices have a negative impact on oil and gas producers' earnings such as Synergy Resources (SYRG), EXCO Resources (XCO), and Sanchez Energy (SN). Part of Colonial Pipeline Co.'s main gasoline line, capable of carrying 1.3 million barrels a day from the Gulf Coast to the eastern US, was shut after a leak, reducing deliveries to New York Harbor, the delivery point for Nymex contracts.

But OPEC President Mohammed Barkindo put doubt on Maduro's optimism, saying that the meeting would be informal and "not a decision-making meeting".

Despite the bearish market mood on Monday, hedge funds scaled back some of their short positions in crude oil futures and options after prices failed to fall further, suggesting the market was running out of negative momentum. "Political tensions will prevent cohesion, and individual members will continue to protect market share from resilient non-OPEC producers", BMI Research said in a note to clients.

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