Oil Pulled Lower as `Done Deal' Proves Elusive on Supply Cuts

(Bloomberg) -- Indecision about supply cuts among the world’s biggest oil exporters pushed crude prices to the lowest level in a week.

Futures declined 1.2 percent in New York as conflicting headlines muddled perceptions of what may emerge from a crucial OPEC-led meeting in Vienna on Thursday. Although an important committee advising the group has reached a consensus, details about the timing or implementation of any extension of supply caps have yet to be disclosed.

“The market’s expecting OPEC to extend their cuts nine months,” Joseph Bozoyan, a portfolio manager at Manulife Asset Management LLC in Boston, said by telephone. “It’s not a done deal yet. If the cuts aren’t extended, then you’ll probably see a decent decline in oil prices.”

Investors also analyzed data from the Energy Information Administration showing a bigger-than-expected drop in U.S. crude stockpiles even as supplies of the primary fuels produced by oil refiners registered surprisingly large increases.

The U.S. crude stock draw “was positive, but the gasoline and distillate inventories really increased at a pretty significant rate,” Bozoyan said.

Oil has declined this week amid lingering uncertainty about the likelihood of an extension of cuts beyond their March expiration at Thursday’s meeting. Iraq’s Oil Minister Jabbar al-Luaibi told reporters that most members support a nine-month extension. Yet at the same time, Libya’s OPEC governor said the nation was not officially asked to cap output.

Downside Price Risk

West Texas Intermediate for January delivery dropped 69 cents to settle at $57.30 a barrel on the New York Mercantile Exchange, the lowest since Nov. 21.

Brent for January settlement, which expires Thursday, edged lower by 50 cents to end the session at $63.11 on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $5.81 to WTI. The more-active February contract fell 71 cents to settle at $62.53.

Saudi Arabia Oil Minister Khalid al-Falih said he was not worried about the market reaction Wednesday, when asked about falling crude prices in Vienna.

See: Oil Options Show Price-Drop Bets Surging Before OPEC Meeting

The OPEC and non-OPEC committee recommended an extension of the cuts agreement with several options for duration, Kuwait’s Oil Minister Issam Almarzooq told reporters in Vienna. Options for both six and nine months were discussed.

An extension of six months or less may lead to downside risk for prices in the medium-term, Jeff Currie, head of commodities research at Goldman Sachs Group Inc (NYSE:GS)., said in a Bloomberg Television interview.

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U.S. crude inventories decreased by 3.43 million barrels last week, larger than the 2.95 million-barrel-draw analysts were expecting, and supplies at the key Cushing, Oklahoma, pipeline hub slipped by 2.91 million barrels, the biggest draw since Sept. 2009, government data showed.

Meanwhile, gasoline supplies rose by 3.63 million barrels, the biggest build since January, and distillate stockpiles posted a 2.75 million-barrel build. Crude production rose to a fresh record.

“The crude draw was a little bit better than consensus,” Brian Kessens, who helps manage $16 billion in energy assets at Tortoise Capital Advisors LLC, said by telephone. Yet, “it’s offset a bit by the refined product side, where distillates and gasoline had a build.”

Oil-market news:

• “Any lack of follow-through” by OPEC and other participating countries such as Russia would be a “material negative signal for crude prices,” Credit Suisse (SIX:CSGN) Group AG analysts wrote in a report.
• Iran will go along with majority decision and expects OPEC meeting in Vienna to go very well, Iran Oil Minister Bijan Zanganeh said.
• Many producers agree that output cuts should be extended to the end of next year to stabilize the market, Oman Oil Minister Mohammed Al Rumhy said in Vienna.