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Oil ends higher as EU reportedly backs French sanctions on Iran and crude producers mull cuts

By Mayra P. Saefong/MarketWatch

Petroleumworld 11 19 2018

Oil prices ended higher on Monday, finding support from news that the European Union backs a decision by the French government to sanction Iran nationals linked to a bomb plot in France.

“Oil traders are now pricing in the possibility that the EU will join the U.S. in taking a tough stance on Iran, and maybe this time there will be no waivers or a way for Iran to sneak out [oil] supply,” said Phil Flynn, senior market analyst at Price Futures Group.

Reuters reported Monday that EU ministers said technical work could begin on an asset freeze on two Iranians and the Iranian intelligence service over a failed plot to attack a rally near Paris.

Oil traders, meanwhile, also weighed the likelihood that major producers due to meet early next month will decide on sizable output cuts to stave off an expected global glut of crude supplies.

December West Texas Intermediate crude CLZ8, +1.26%  tacked on 30 cents, or 0.5%, to settle at $56.76 a barrel on the New York Mercantile Exchange after trading as low as $55.08. The December contract expired at Monday's settlement. January WTI crude CLF9, +0.38% which is now the front-month contract, settled at $57.20, up 52 cents, or 0.9%.

A sense of oversupply, including in the latest U.S. data, has kept a general downward pressure on prices, which were at nearly four-year highs as recently as early October before a plunge into a bear market.

WTI prices were down 6.2% for last week. A late-week recovery for WTI allowed the benchmark to halt what had been a record 12-session streak of declines, which took it as low as a $55.69 finish on Nymex at one point. It was the lowest closing price for a front-month contract since Nov. 16, 2017.

As the Organization of the Petroleum Exporting Countries “continues to consider the idea of additional cuts in order to stop oil's recent slide, Russia has appeared less supportive, potentially placing a greater burden on Saudi Arabia for any coordinated action,” said Robbie Fraser, a global commodity analyst at Schneider Electric.

“Saudi Arabia's decision whether or not to limit supply is also further complicated by geopolitics, as tension with countries, including the United States, remains elevated following the assassination of journalist Jamal Khashoggi ,” he said in a note.

Global benchmark January Brent LCOF9, +0.37% added 3 cents, or less than 0.05%, to $66.79 a barrel on Monday. Its close at $65.47 a barrel on ICE Futures Europe at one point last week meant it officially joined its U.S. counterpart in a bear market, defined as at least a 20% pullback from a recent high.

Evidence of weakening global economic growth and the decision by the Trump administration to grant waivers to major buyers of Iranian crude following the enactment of sanctions had fueled selling pressure. Sanctions had been expected to keep most Iranian oil off the market.

At the same time, the U.S., Russia and Saudi Arabia, all leading producers, are pumping crude at record levels, causing global supply to significantly outrun demand, a monthly update from the International Energy Agency showed last week .

Yet the price drop has prompted OPEC and its allies, including Russia, to signal earlier this month that they could enact a joint production cut . Such a move would come just months after the group decided to ramp up production after more than a year of holding back output. The expanded group next meets Dec. 6.

“Further OPEC-cut chatter may offer the bullish, speculative catalyst needed to spark a short covering rally back into the low $60s for WTI but it will likely not be sustainable unless there is a material shift in the market fundamentals, which are decidedly skewed in favor of the bears right now,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch.

Meanwhile, December natural gas NGZ18, -2.55% rallied by 10% to $4.70 per million British thermal units. Natural-gas futures ended last week 14.9% higher, after settling midweek at the highest in over four years .

December gasoline RBZ8, -0.17%  rose 0.4% to $1.583 a gallon, while December heating oil HOZ8, +0.10%  climbed by 0.6% to $2.086 a gallon.


Story by Mayra P. Saefong from MarketWatch.

11 19 2018 19:22 GMT

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