U.S. oil prices fell more than 1 percent on Monday,
easing from two-year highs on prospects of higher supply from a planned
restart of the Keystone crude pipeline and uncertainty about Russia’s
resolve to join in extending output cuts ahead of this week’s OPEC
meeting.
TransCanada Corp (TRP.TO)
said it will restart its Keystone crude oil pipeline at reduced
pressure on Tuesday after getting approval from U.S. regulators.
Calgary-based
TransCanada shut down the 590,000 barrel-per-day pipeline, one of
Canada’s main crude export routes to the United States, on Nov. 16 after
5,000 barrels of oil leaked in South Dakota. Keystone carries crude
from Alberta’s oil sands to U.S. refineries.
Brent
futures LCOc1 ended down just 2 cents at $63.84 a barrel while U.S.
crude CLc1 settled 84 cents, or 1.4 percent, lower at $58.11 a barrel.
On Friday, U.S. crude touched $59.05 a barrel, its strongest since mid-2015, following the spill.
In
post-settlement trading the front month spread for U.S. crude spread
hit a session low of negative 10 cents a barrel, after Transcanada’s
restart announcement.
Oil prices have surged in
recent months due to output cuts by the Organization of the Petroleum
Exporting Countries, Russia and other producers. However, higher prices
have encouraged greater output among U.S. producers.
OPEC
and its allies cut production by 1.8 million bpd in January and have
agreed to hold down output until March. OPEC meets on Thursday to
discuss policy and most analysts expect a deal to extend the cuts.
On
Friday, Russia said it was ready to support extending an output cut
deal. Still, Russia has not given a timeline, and on Monday there were
signs Russia may find it hard to comply.
Oil
output from Russia’s Sakhalin-1 project is set to rise by about a
quarter to 250,000-260,000 barrels per day (bpd) from January, sources
with knowledge of the plan said.
“It’s the OPEC
parlor game that we’re all playing,” said John Kilduff, partner at
Again Capital LLC in New York, “The Russians being quiet about their
intentions about the OPEC deal is a little unsettling.”
Oil
markets will rebalance after June 2018 at the earliest, an OPEC working
panel concluded last week, OPEC sources said on Monday, signaling the
need to extend existing production cuts well into next year.
Analysts
at Barclays expect OPEC to keep output limits for another six or nine
months. However, they said this was widely expected, so prices still
might fall after the OPEC meeting.
Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, also saw “plenty of room for disappointment.”
“Should
the outcome of the next OPEC meeting fall short of expectations, the
large net-long speculative position on oil futures can unwind, sending
prices lower and volatility higher.”
Additional
reporting by Christopher Johnson in London, Henning Gloystein in
Singapore; Editing by David Gregorio, Edmund Blair and Mark Potter
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