Oil prices slip as US Government proposes sale of strategic reserves

The news on Tuesday was supportive, but now that it looks like an extension of the OPEC-led plan to curb production, trim supply and boost prices is a done deal, crude oil investors are going to be asking for more from OPEC and the other large non-OPEC producers.

On the eve of today’s rally, the Minister of energy, industry and mineral resources of Saudi Arabia Khaled al-Faleh gave an interview to Bloomberg in which he said that all parties to the transaction agree to extend the agreement for nine months.

As oil spot prices have been lower than futures prices since the end of 2014, shale oil producers have been able to sell their oil at higher prices than major OPEC producers.

“Gold holds its trend of rising support at $1260 thanks to a weak Dollars, but (has been) unable to breach last week’s $1265 highs”, said Mike van Dulken, head of research at Accendo Markets.

“The US president is proposing selling off some of the SPR, but he’s trying to do it in 2018” so any price impact on Tuesday will be short-lived, said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.in London.

“The Saudi oil minister’s view seems accurate and no serious objection is expected if at all“, one delegate told Reuters, asking not to be identified as he is not allowed to speak to the media.

Several OPEC delegates said they expected the meetings on Wednesday and Thursday to be relatively painless, resulting in an output cut extension by nine months.

“It continues to be a momentum driven trade ahead of OPEC’s meeting”, said Tony Headrick, energy market analyst at CHS Hedging. Iran is emerging from a presidential election won by the incumbent, Hassan Rouhani.

“We’re on the cusp of a rollover of the OPEC deal”, Bob Yawger, director of the futures division at Mizuho Securities USA Inc.in NY, said by telephone.

It cited International Energy Agency data as forecasting that Russia’s oil output would rise to 11.38 million barrels per day this year and 11.54 million bpd next year, due to rising production by small- and medium-size energy companies.

A release of US strategic reserves could jolt an already imbalanced oil market and undermine attempts by the Organization of the Petroleum Exporting Countries and other producers, including Russian Federation, to end a persistent supply glut.

Brent crude futures were trading down 43 cents, or 0.8 percent, at $53.44 per barrel at 06:43 GMT. US light crude was up 34 cents at $51.47.

“It’s not huge, but it won’t help Saudi efforts”, he said.

For Algeria, the higher the price the better, but the budget focused on $50 a barrel in 2017, $55 a barrel in 2018.

Because of this, analysts at Citi expect a nine-month extension, and warn of an upset if it isn’t achieved.

“The other two are much less likely though, I would give the nod to a deeper cut versus abandoning all together”, he added.