The direction of oil prices over the next few months will be set this week – not by the continuing disruption to a major crude-oil pipeline in the US, but the key OPEC meeting this Thursday.
Russia said on Friday it is ready to support extending a deal among oil producers on cutting output, less than a week before the OPEC meeting in Vienna but we don’t know for how long.
The deal to curb production expires in March but is widely expected to be extended at a meeting in Vienna this Thursday. It’s expected to be extended to the end of 2018, but any move to shorten it (as some suggest Russia might do), would see prices sell off.
Some expect the meeting will yield an extension to a production-cut deal that was hammered out in January, but analysts warned that the market could be setting itself up for disappointment if it boost prices well past $US60 a barrel.
At the back of everyone’s minds at the meeting will be rising US output.
US West Texas Intermediate (WTI) crude futures for January delivery rose 93 cents, or 1.6%, to $US58.95 a barrel in light holiday impacted trading in the US, prices not seen since mid 2015.
In Europe, Brent December crude futures added 31 cents, or 0.5%, to $US63.86 a barrel.
For the week, WTI gained 4% and Brent was up 1.8%. Data from FactSet shows WTI has posted three weekly gains in a row, while Brent has logged four consecutive weekly gains.
Crude prices were helped higher by inventory data from the US Energy Information Administration (EIA) showed crude stockpiles fell by 1.9 million barrels last week.
Added to that was the continuing problems the Keystone pipeline operator TransCanada was having with reduced flow through a key line after a leak last week.
The pipe will only operate at 15% of its capacity for another week which will cut supplies to the Cushing hub in Oklahoma and probably help another reduction in US stocks .
Reuters reported that Russian Energy Minister Alexander Novak said on Friday that Russia would discuss the details of an extension of the global deal on November 30, but made no mention of how long this should last beyond its March expiry.
“We see that 50 percent of oil stockpiles have been removed, the oil price has reached its balance,” Novak told RBC TV. “However, the targets on rebalancing the market have not been reached. Everyone supports the extension, so that the targets are finally reached,” Novak said, adding that “different options are under consideration”, according to a report from Reuters.
“There is growing consensus that OPEC will extend their production cut deal at the end of the month. This confidence along with the current geopolitical environment has kept Brent trading firmly above $60 per barrel,” Dutch bank ING said in a report.
“However, an outcome at the OPEC meeting which falls short of market expectations will likely lead to a selloff, and given the large speculative long in Brent, this could be fairly severe,” it added.
So watch US oil production which rose to average 9.658 million the week before last, the EIA said in last week’s report .That was 968,000 barrels a day higher than the previous week. The month average of 9.619 million barrels a day was 11.3% above a year earlier.
Rising US production remains the risk for OPEC, especially if there is trouble or delays to any new agreement.
Strategists at TD Securities warned in a note on Friday. “However, given expectations of a done deal from OPEC, there is a risk we see a price correction if there is any waffling or reservations.”
