Oil Futures End Up

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher Monday afternoon, rallying as the Organization of Petroleum Exporting Countries gathered in Algiers for the International Energy Forum and ahead of informal discussions on Wednesday, Sept. 28, to discuss market conditions that many in the market hope would lead to an agreement that reduces global oil production.

The prospect of a deal on production levels increased after Saudi Arabia and Iran showed flexibility in their positions. Russia also said it would join in such an agreement.

"They are moving closer to a deal, but whether it gets done remains to be seen," said Phil Flynn, a Chicago-based analyst with Price Futures. "The concessions being made suggest they will agree, which is what's driving oil prices higher."

NYMEX November West Texas Intermediate crude futures settled $1.45 higher at $45.93 per barrel (bbl) while November Brent futures on the IntercontinentalExchange jumped $1.46 to $47.35 bbl after inside trade. NYMEX October ULSD futures rallied 4.17 cents to a $1.4490 gallon settlement, while NYMEX October RBOB futures climbed 2.55 cents to a $1.4024 gallon settlement, off a four-day high of $1.4205.

NYMEX product futures were also supported by a refinery glitch in Texas, said Flynn.

Saudi Arabia last week said it would reduce its crude production, which reached a record high of 10.63 million barrels per day (bpd) in August, to January levels if Iran agrees to freeze production. Saudi Arabia reported output in January at 10.23 million bpd.

Today, Tehran reportedly counteroffered, saying it would agree to limit its output to below its pre-sanction's level, with Iranian crude production at 4.1 million bpd ahead of Western sanctions on its oil exports that took effect in 2012. Iran won relief from sanctions in January, and stated its goal to raise production to 4.0 million bpd this year. Iran reported crude production of 3.63 million bpd in August.

The counteroffer suggests a 400,000 bpd reduction in crude production from Tehran's early year goal, and that the compromise would freeze Iran's output at its current level, said Flynn.

Analysts remain cautious, however.

"We believe any agreement in Algiers, or in the coming weeks, will depend on prices and will have little physical supply effect," said Barclays Capital. "Thus, we recommend paying less attention to Algiers and more attention to a naturally tightening oil market balance that precludes the group from having to make any difficult decisions."

George Orwel can be reached at george.orwel@dtn.com