Oil Prices Fall On Pipeline Restart, Uncertainty Over OPEC Output Cuts
U.S. crude touched $59.05 a barrel on Friday, the highest level since mid-2015, fuelled by the outage of the Keystone pipeline, one of Canada's main crude export routes to the United States
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Oil prices slipped in Asian trade on Tuesday amid uncertainty over a possible extension of output cuts by major crude producers and expectations of higher supply as the Keystone pipeline restarts.
Brent futures had fallen to $63.72 a barrel by 0753 GMT, down 12 cents, or 0.2 percent, from their previous close. U.S. West Texas Intermediate (WTI) futures were down 29 cents, or 0.5 percent, at $57.82 a barrel, after falling 1.4 percent in the last session.
U.S. crude touched $59.05 a barrel on Friday, the highest level since mid-2015, fuelled by the outage of the Keystone pipeline, one of Canada's main crude export routes to the United States. But TransCanada Corp this week said it would restart the 590,000 barrel-per-day pipeline at reduced pressure later on Tuesday after getting approval from U.S. regulators.
Uncertainty over Russia's determination to join with other major oil producers in extending crude production curbs beyond next March has weighed on oil markets.
Members of the Organization of the Petroleum Exporting Countries (OPEC) and other key producers, including Russia, will meet on Nov. 30 to discuss whether to continue with the cuts after they agreed last January to withhold 1.8 million bpd of output.
United Arab Emirates energy minister Suhail bin Mohammed al-Mazroui said on Tuesday that while the meeting would not be easy, he was personally optimistic producers would reach an agreement that served the market.
Saudi energy minister Khalid al-Falih said the oil market should wait for the outcome of this week's OPEC meeting when asked on Tuesday in Dubai about how long producers might extend their cuts. Russia's economy was negatively affected in October by the ongoing curbs, which saw Moscow agree to cut output by 300,000 bpd, Economy Minister Maxim Oreshkin said on Nov. 23.
Goldman Sachs said the outcome of the meeting was "much more uncertain than usual", adding that the market faced downside risks.
"We view risks to oil prices as skewed to downside this week as we believe current prices, timespreads and positioning already reflect a high probability of a nine-month extension," the bank said.
Consultancy Wood Mackenzie said it looked as if producers had nearly concluded an agreement to extend cuts until the end of next year.
"(But) if the production cut agreement ends in March 2018, our forecast shows there would be a projected 2.4 million bpd year-on-year increase in world oil supply for 2018," Ann-Louise Hittle, vice president, macro oils, said in a note on Monday.
Some traders are starting to consider the possibility that while producers will agree to extend the curbs, the scale of the output cuts will be reduced from the current 1.8 million bpd, said Ric Spooner at Sydney's CMC Markets.
"It would provide continued certainty for the market, avoiding the sharp sell-off that could accompany a cold turkey exit ... (and) mitigate the risk to OPEC and Russia of precipitating further loss of market share by encouraging competitors with higher prices," Spooner said.