Oil prices drop as chances of output cut fade

*Oil prices drop.

*Oil prices drop.

*Investors see coordinated output cut less likely after Iran raises its export target before it will cut production

01 February 2016, New York —
Crude oil prices fell on Monday, pushed lower by the dimming prospects of a coordinated production cut by world’s dominant oil producers.

April Brent crude on London’s ICE Futures exchange fell to $35.72 per barrel, down 0.72%. On the New York Mercantile Exchange, light, sweet crude futures for delivery in March traded at $33.09 per barrel down 1.64%.

Following weeks of losses, prices gained last week after Russia and Saudi Arabia said they were considering output cuts. On Monday, investors were taking a different view.

That coordinated cut appears less likely after Iran said Friday it “won’t consider a cut” until its exports have increased by 1.5 million barrels a day over current levels of roughly 1.1 million barrels a day.

The International Energy Agency predicts the country will export an extra 300,000 barrels by the end of this year.

“To break the current levels, which are back to second half of December levels, we need confirmation of a deal,” said Olivier Jakob, an analyst at Switzerland-based Petromatrix.

The markets progress this week will center on whether traders believe such a deal is likely to happen.

If no deal is agreed, it could spell trouble for some of the largest oil producers. Nigeria and Azerbaijan have already approached the International Monetary Fund for a bail out, with low prices pummeling their oil-dependent economies.

“At lower prices, we can expect more bottom picking, providing temporary support to prices, but it will be really difficult for a lot of producers to cope at $26 or less,” Mr. Jakob said.

Lackluster Chinese manufacturing data was also damping prices. China’s statistics bureau reported Monday that the official manufacturing purchasing managers index fell to 49.4 in January from 49.7 in December, marking the lowest level since August 2012 and the sixth straight month of contraction.

China’s continuing slowdown has weighed on global oil demand. Last month, China said the country’s economy grew 6.9% in 2015, the slowest pace in 25 years.

“This weak data would likely remind the market of bearishness again, suggesting more drops for the market in the week ahead,” said Phillip Futures analyst Daniel Ang.

However, some analysts say China’s crude imports could still grow around 7% this year driven by demand from local refiners and as the government stocks up its strategic reserves. Crude demand from China grew by 8.8% in 2015.
*Miriam Malek; Jenny W. Hsu also contributed to this article – WSJ

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