Oil prices set for 5% gain on hopes for output deal

OIL PRICES

NEW YORK: Oil prices fell more than 2 percent on Friday, paring the previous session's spike as the market discounted an unexpected slump in US crude inventories as a storm glitch.

Still, the market was on course to gain nearly 5 percent, its first weekly gain in three weeks, on hopes for a global deal on stabilizing crude output after Saudi Arabia, the leading oil producer inside OPEC, and Russia, the biggest producer outside the group, agreed on Monday to cooperate in oversupplied markets.
Brent crude was down $1.35 at $48.64 a barrel by 11:52 a.m. ET (1552 GMT) after rising above $50 for the first time in two weeks on Thursday. US crude was down $1.16 at $46.46.
Oil prices shot up on Thursday after US government data showed the biggest weekly drop in stockpiles last week since January 1999 as Gulf Coast imports slumped to the lowest on record. Traders said imports fell as ships delayed offloading cargoes in Texas and Louisiana due to Tropical Storm Hermine.
"We're pulling back after the big run-up yesterday. We're expecting supplies to rise next week as production is back up after the storm in the Gulf of Mexico," said Phil Flynn, an analyst at Price Futures Group in Chicago.
"People are covering their shorts now because the market ran too far too fast."
Greenback-denominated oil was also under pressure after the dollar index rose on concerns over the health of the EU economy and on remarks by Federal Reserve policymakers helped boost investor expectations of a near-term increase in US interest rates.
While the market traded fairly thin on Friday, analysts and traders continued to debate how effective a deal would be to limit supply when OPEC and non-OPEC producers meet informally in Algeria on Sept.26-28.
Algeria's oil minister on Friday underscored that tension, saying that two separate agreements could be required between OPEC and non-OPEC producers, highlighting the difficulties of clinching such deals.
The oil options market indicates investors could well be holding out for a deal further down the line and are displaying a lot more optimism, as demand and supply come closer to falling into balance.
The International Energy Agency has said it expects oil demand to finally exceed supply in the third quarter of 2016, meaning record global crude stockpiles should start falling.
But analysts from Morgan Stanley said in a note there were risks the market might not rebalance until later.
"Once again, we see an increasing probability for several unexpected bearish developments to come together, which could push off rebalancing (seasonally-adjusted demand exceeding supply) to late 2017, or even 2018," Morgan Stanley said.
US drillers this week added oil rigs for a tenth week in the past 11, according to a closely followed report on Friday, the longest streak of not cutting rigs since 2011, as the rig count recovered to February levels.
After falling 206 rigs in the first half of the year, the rig count has increased or held steady every week so far this quarter. The rig count plunged from a high in October 2014 after crude prices collapsed in the biggest price rout in a generation.
Drillers added seven oil rigs in the week to Sept. 9, bringing the total rig count up to 414, energy services firm Baker Hughes Inc said. That is well below the 652 oil rigs active during the same week a year ago, but is up from the recent bottom of 316 rigs seen in May.