Oil rises to seven-month high even as OPEC maintains status quo

Oil rose to a seven-month high in London after a U.S. crude supply decline tempered the impact of OPEC’s failure to reach an agreement for a new production ceiling.

Brent closed above $50 a barrel for the first time since Nov. 3. The Organization of Petroleum Exporting Countries’ de facto leader, Saudi Arabia, had previously discussed restoring an output target scrapped in December, delegates familiar with the matter said. U.S. crude stockpiles dropped the third time in four weeks, according to a government report.

“There was no action, no surprise,” said Michael Wittner, the New York-based head of oil-market research at Societe Generale, said of the OPEC meeting. “It was interesting to see that the Saudis were willing to talk about an overall ceiling, but Iran stuck to its party line and nothing came of it. The overall result is that things will be unchanged.”

Oil has surged more than 85 percent in New York from a 12-year low earlier this year amid signs global supply, especially U.S. shale production, is under pressure from OPEC’s strategy of sustaining production amid a glut. Prices also advanced because of disruptions to output in Canada, Nigeria and Libya.

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Brent for August settlement rose 32 cents to close at $50.04 a barrel on the London-based ICE Futures Europe exchange. Total volume traded was 22 percent below the 100-day average at 3:04 p.m.

West Texas Intermediate for July delivery rose 16 cents to settle at $49.17 a barrel on the New York Mercantile Exchange. Prices earlier dropped as much as $1.04 to $47.97. The August WTI contract closed at a 38-cent discount to Brent.

U.S. crude stockpiles dropped 1.37 million barrels to 535.7 million last week, an Energy Information Administration report showed Thursday. The industry-funded American Petroleum Institute reported that supplies climbed 2.35 million barrels. Inventories climbed to 543.4 million barrels in the week ended April 29, the highest since 1929.

“The reaction to the inventory data just shows the market’s ability to react to the latest headline rather than giving them timely, even-handed thought,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

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This marked the first OPEC meeting since Khalid Al-Falih became Saudi Arabia’s oil minister. Al-Falih is close to the kingdom’s powerful Deputy Crown Prince Mohammed bin Salman, whose plan to partly privatize the state oil company has sparked speculation it may further expand production capacity and market share, severing its ties to OPEC.

“It was important because it was Khalid’s first meeting,” said Michael D. Cohen, an analyst at Barclays Plc in New York. “It’s more of the same from OPEC. They are setting it up where it’s shale output that will have to moderate prices in the short term.”

While Saudi Arabia had shown willingness to mend divisions Thursday with cash-strapped members demanding a new group ceiling, Iran said it would only support individual country quotas that would be difficult to agree to in a single meeting.

Iran has rejected any cap on production as it restores output following the removal of sanctions in January. The country’s refusal to participate in a production freeze proposed earlier this year prompted Saudi Arabia to block a deal between OPEC and Russia at a meeting in Doha in April.

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“Gulf producers continue to indicate desire for collaboration, but Iran’s position prevents agreement,” said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. “The time is just not right yet. It will be at some point.”

While OPEC regularly ignores its own output targets and there had been no suggestion anyone would cut production, even token gestures would have shown a renewed unity and lifted prices. United Arab Emirates Oil Minister Suhail Mohammed Al Mazrouei had said OPEC and producers outside the group would have to agree to any supply freeze. OPEC appointed Nigeria’s Mohammed Barkindo as secretary-general during the meeting.

Fuel prices also climbed after the EIA showed supply declines. Gasoline stockpiles fell 1.5 million barrels to 238.6 million last week. Demand of the motor fuel was 9.66 million barrels a day averaged over the four weeks ended May 27, the highest seasonal level in at least a decade, according to EIA data.

Supplies of distillate fuel, a category that includes diesel and heating oil, dropped 1.26 million barrels to 149.6 million, the lowest since December.

July gasoline futures rose 1.2 percent to settle at $1.6346 a gallon. Diesel for July delivery climbed 0.7 percent to $1.5088.

Caroline Alexander contributed.