Oil drops with Iran talks in focus, Saudi Arabia output

Both West Texas Intermediate and Brent benchmarks fell on Monday on speculations Iranian diplomats and their counterparts from six world powers may reach an agreement over the nations disputed nuclear program this week in Geneva. Data showing Saudi Arabia, OPECs biggest producer, exported the most oil in eight years in September also weighed on prices. Losses however remained in check after clashes in Tripoli last Friday caused the death of 13 people and wounded more than 130, followed by a kidnapping of Libyas deputy intelligence chief outside the capitals international airport on Sunday. Speculations the Federal Reserve will maintain its current bond purchasing pace following Janet Yellens hearing last Thursday also underpinned the market.

On the New York Mercantile Exchange, WTI crude for delivery in January traded at $94.08 per barrel at 8:37 GMT, down 0.45% on the day. Prices shifted in a days range between $94.49 and $94.04 a barrel. The U.S. benchmark fell by 0.7% last week and marked a sixth consecutive weekly decline, the longest losing stretch since 1998.

Meanwhile on the ICE, Brent futures for settlement in January fell by 0.68% to $107.76 a barrel by 8:39 GMT. Prices held in a narrow range between days high and low of $108.59 and $107.74 a barrel. The European benchmark was almost unchanged on Friday and settled 3.2% higher last week, offsetting the previous two weeks 2% decline.

Oil prices were pressured on Monday on speculations for a possible breakthrough in talks between Iran and world powers in Geneva this week after a senior U.S. official said on Friday a deal with Iran was “quite possible” this week. If an accord is reached, it would lift U.S. and EU sanctions on the Islamic republics oil exports, paving the way for the return of more than 1 million barrels of oil per day to the global market. Iranian diplomats and their counterparts from the U.S., U.K., Russia, China, France and Germany are to reconvene in Geneva on November 20.

Also fanning negative sentiment, data by the Joint Organisations Data Initiative showed Saudi Arabia, OPECs leading producer, exported the most crude in September since November 2005. The nation pumped an average of 10.12 million barrels of crude per day and shipped 7.84 million in September.

This added to EIAs report last week which showed U.S. crude inventories jumped for an eight consecutive week to the highest since June as output surged to the highest since 1989. Crude stockpiles jumped by 2.6 million barrels in the week ended November 8, exceeding more than three times an anticipated 800 000 barrels increase according to a Bloomberg survey of analysts.

Ric Spooner, a chief market analyst at CMC Markets in Sydney, commented for Bloomberg: “Supply has been more than enough to cover demand, particularly in the U.S.. That, plus a diminished Middle East risk premium, has seen the supply situation being a dominant factor.”

Data from the the U.S. Commodity Futures Trading Commission showed that money managers reduced their net-long positions on WTI for a tenth week in eleven in the five days through November 12. Wagers that prices will rise jumped by 4.3%, while bets for a decline surged to a six-month high.

Libya tension

The market however drew support amid persisting turmoil in Libya, Africas biggest crude reserves holder. Clashes between Libyan militiamen and armed residents in Tripoli on Friday resulted in the death of 13 people, while more than 130 were wounded.

Meanwhile, Libyas deputy intelligence chief was kidnapped outside Tripolis international airport on Sunday, only a month after the prime minister was held captive for a day, reinforcing the governments inability to regain its grip.

Output fell to an average of 450 000 barrels of oil per day in October, down from 1.45 million bpd a year earlier, data by Bloomberg showed.

Prices were also underpinned on expectations the Federal Reserve will maintain its current bond purchasing pace following a recent string of downbeat U.S. data, which backed Fed Vice Chairwoman Janet Yellens comments at a Senate hearing last week the central bank should extend its accommodative policy until a robust economic recovery is at hand.

Yellen said she doesn’t see evidence at this point that the current policy is inflating assets bubbles, further curbing speculations for an earlier-than-expected tapering of the stimulus.

In her prepared comments prior to the hearing, Yellen called last month’s 7.3% unemployment rate too high, noting the economy and labor market were performing short of their potential, while inflation remained well below Fed’s 2% target and provided room for easy money supply.

A weaker greenback allowed dollar-denominated commodities to regain strength. The U.S. dollar index, which measures the dollars performance against six major counterparts, traded at 80.80 at 8:29 GMT, down 0.08% on the day. Prices shifted in a days range between 80.97 and 80.77. The U.S. currency gauge fell on Friday and settled the week 0.5% lower. A weakening of the greenback makes dollar-priced raw materials cheaper for foreign currency holders and limits their appeal as an alternative investment.