Brent oil halted gains above $40 a barrel as forecasts that US stockpiles would remain at the most since 1930 competed with speculation producers may agree to an output freeze.
Futures in London lost as much as 1.4 per cent after closing above $40 for the first time since December on Monday, capping the longest run of gains in three months. US supplies probably rose 3.5 million barrels last week, according to a Bloomberg News survey before government data Wednesday. Ecuador’s foreign ministry said Latin American producers will meet on Friday to discuss oil prices, while Russia said last week major suppliers may meet by April 1.
“Fundamentals are not there yet, but we’ve also seen a change in sentiment now over the past couple of weeks,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a Bloomberg Television interview. “The market is starting to believe now we have seen the low.”
Oil in London has advanced more than 40 per cent since slumping to a 12-year low in January amid speculation a proposal to freeze production will trim a global glut. A meeting among major producers to discuss capping output may be held in Russia, Doha or Vienna sometime between March 20 and April 1, Russian energy minister Alexander Novak said on state television last week.
Brent for May settlement fell as much as 59 cents to $40.25 a barrel on the London-based ICE Futures Europe exchange and traded at $40.33 at 12.04pm Hong Kong time. The contract climbed $2.12 to $40.84 on Monday, the highest close since Dec. 4. The global benchmark crude was at a premium of 95 cents to West Texas Intermediate for May.
WTI for April delivery dropped as much as 1.5 per cent to $37.35 a barrel on the New York Mercantile Exchange. The contract gained $1.98 to $37.90 on Monday, the highest close since December 24. Total volume traded was about 21 per cent above the 100-day average.
There will probably be a price correction by the end of the year, Suhail Al Mazrouei, UAE Minister of Energy, said on Monday. Markets are poised to re-balance as many producers outside Opec lose money at current prices, Mr Al Mazrouei told reporters in Abu Dhabi.
Meanwhile, major Opec producers are privately starting to talk about a new oil price equilibrium of $50 a barrel, adding to signs that the market’s long, deep rout is officially over, according to one of the industry’s leading prognosticators.
Gary Ross, the founder, executive chairman and chief oil soothsayer at New York-based consultancy PIRA, told clients 2-1/2 weeks ago that he reckoned the “lows are in” for crude, which was then about $30 a barrel.
In an interview with Reuters, Mr Ross said oil should recover to $50 a barrel by the end of the year, potentially aided by eventual supply cuts from leading producers among Opec.
“They want $50 oil, this is going to become the new anchor for global oil prices,” said Mr Ross, one of the industry’s most respected forecasters for his bold price predictions and decades-long history of consulting with Opec members.
“While it may not be an official target price, you’ll hear them saying it. They’re trying to give the market an anchor.”
If Saudi Arabia and other powerful Gulf Opec members begin invoking $50 as “fair price for producers and consumers” – a once-favoured phrase that has been absent for several years – it may could signal the end of an unusual and extended period in which the group abandoned efforts to manage the market.
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