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Oil retreats on weak Chinese data, Iran rejection of output freeze

By Myra P. Saefong and Dan Strumpf

Published: Mar 14, 2016 10:54 a.m. ET


Iran’s oil minister rejects production freeze until country’s output rises

Bloomberg

Oil futures fell Monday as Iran again tossed cold water on market speculation for a production cut and weak economic data from China raised worries about the outlook for energy demand.

The move pauses a rally that took crude near its highs of the year following a report from the International Energy Agency that said prices may have bottomed.

April West Texas Intermediate crude CLJ6, -4.10% fell $1.59, or 4.1%, to $36.91 a barrel on the New York Mercantile Exchange after finishing last week with a gain of more than 7%. May Brent crude LCOK6, -2.75% on London’s ICE Futures exchange lost $1.33, or 3.3%, to $39.06 a barrel.


Iran reportedly said over the weekend that it still intends to ramp its production level back up to the 4 million barrels a day it was at before sanctions were imposed from about 3 million barrels a day currently, said Colin Cieszynski, chief market strategist at CMC Markets.


Other members of the Organization of the Petroleum Exporting countries have said they’d be reluctant to agree to stabilizing production without the participation of other major oil producers.

“Even though this should not have come as a surprise to anyone who has been paying attention and is not unreasonable, it appears the rumored meeting among oil producers to try and stabilize production may be pushed off to April,” Cieszynski said in a note.

“Oil markets had been getting technically overbought so Iran appears to have been the excuse for a needed correction,” he said. “Still, with Brent hanging around $40.00 and WTI trading well above $35.00, the underlying recovery trend and Friday’s comments from the IEA about oil having turned the corner remain intact.”

Meanwhile, data from China Monday showed that industrial production grew 5.4% in January and February, compared with a year earlier. That’s down from December’s 5.9% pace. Weak data from China tend to raise concerns that demand from the world’s largest energy consumer will slow.

The latest move for oil comes on the heels of a brisk rally, which lifted prices to their highest levels of the year. The gains have been fueled by supply reductions around the world and the prospect of a coordinated supply freeze by major oil-exporting countries.

Some analysts say oil prices may have found a new equilibrium after their recent rally. U.S.-traded crude is likely to be capped in the “low-to-mid 40s,” according to analysts at Morgan Stanley. The bank said funds are closing out their short bets, putting upward pressure on prices at current levels, while oil producers are laying down fresh hedges, pushing prices lower.

“When we put it all together, it suggests WTI will struggle to break $45 in the front,” the analysts wrote in a note to clients.

Darin Newsom, DTN senior analyst, said that fundamentally nothing much has changed for oil and there’s still “plenty of supply” to meet demand.

The recent rally left prices “overbought” near the price resistance level, which is pegged at almost $38.20, he said.

The U.S. Federal Reserve’s decision on interest rates due Wednesday may also influence oil prices, depending on its impact on the U.S. dollar, according to Newsom. A stronger dollar can cut demand for dollar-denominated oil on global markets and vice versa.

Back on Nymex, April gasoline RBJ6, -1.54% traded at $1.417 a gallon, down 2.7 cents, or 4.1%, while April heating oil HOJ6, -2.05% edged down by 3.5 cents, or 2.9%, to $1.184 a gallon.

April natural gas NGJ16, +1.65% was up 1.1 cents, or 0.6%, to $1.832 per million British thermal units.

http://www.marketwatch.com/story/oil-futures-pause-in-asia-after-early-rally-2016-03-13