Oil prices mostly flat on profit taking after big Q3 gains

Oil prices rose earlier in the day on OPEC compliance news

Oil prices fell slightly on Tuesday as investors cashed in on third quarter gains. Statoil photo.

Oil prices dipped slightly on Tuesday as speculators cashed in on third quarter gains, but hopes that the global crude glut is being tackled lent some support.

Brent crude fell 15 cents to $55.97/barrel by 2:29 p.m. EDT and US WTI was down 4 cents to $50.42/barrel and Western Canadian Select dropped by 95 cents to $39.71/barrel.

In the third quarter, Brent was up about 20 per cent, the biggest Q3 increase since 2004. Brent was trading as high as $59.49 last week, but has since fallen about 6 per cent. On Monday, Brent had lost almost 2.5 per cent.

According to a Reuters report, money managers encouraged by signs of market rebalancing pushed bullish bets on the Brent crude market. But, positioning was too stretched, resulting in an abrupt drop in price.

“It’s always problematic when you have this amount of speculative length in the market,” Petromatrix strategist Olivier Jakob told Reuters.

“The price action … for me is all about positions and potentially profit-taking on some of those speculative positions.”

On Tuesday, OPEC Secretary-General Mohammad Barkindo said compliance among participants in the cartel’s supply cut pact is extremely high. Barkindo added that OPEC is hoping to strengthen its cooperation with Russia.

Russian news agency TASS reports that at the Russian Energy Week conference in St. Petersburg, Russia’s Energy Minister Alexander Novak said “We (Russia, OPEC and other pact members) will discuss the state of the market and the current situation regarding monitoring and execution of the crude production deal with our colleagues.”

Middle Eastern crude producers are concerned that should the price of oil continue to rise, US shale producers will quickly bring production back online and push prices down again.

“Any time we get above 50 dollars a barrel drilling starts to ramp up, and that’s going to bring the price of oil back down again,” Mark Watkins, regional investment manager at U.S. Bank told Reuters.

Watkins also noted that the summer driving season has come to a close, which will result in a drop for gasoline demand.

Analysts like Watkins are awaiting data from the US Energy Information Administration on crude oil stocks which will be released on Wednesday.