Odds are rising that OPEC and Russia will announce a 1 million to 1.3 million barrel a day production cap at Thursday’s meeting to try and put a line under global prices which slumped more than 20% in November.
Russia and Saudi Arabia agreed to extend into 2019 their agreement to manage the oil market, known as OPEC+ at the weekend’s G20 meeting in Argentina.
But there is no sign of any agreement on any output cuts or caps.
The news is likely to see a jump in global oil prices today.
Russian President Vladimir Putin announced the extension after a meeting Saturday at the G20 meeting in Argentina with Saudi Arabian Crown Prince Mohammed bin Salman.
His comments open the door for a deal at the OPEC in Vienna on Thursday. Bloomberg reported that OPEC delegates said the leaders have given their political blessing for an agreement, but the size of any cap still has to be talked through.
While oil spent all of November under pressure, US gas prices soared 41% in the month as colder weather and lower stocks (currently 19% down on a year ago) saw demand and prices driven higher. Natural gas was the best performed major commodity last month.
Along with a couple of other non-member producers, the OPEC-Russia meeting will be the major event in commodities this week and for the final month of 2018. Talks between the Saudis and Russia took place at the G20 meeting without any subsequent comments.
“Markets will be watching how OPEC will grapple with multiple threats to their efforts to keep prices buoyant,” says Peter Kiernan, a lead energy analyst at forecasting and advisory services provider Economist Intelligence Unit. Those include “expectations of slower oil demand growth next year, robust U.S. supply…and vocal pressure from [U.S. President] Donald Trump to keep prices lower.”
Oil futures reached near four years in early October, only to drop to a more year plus lows in late last week – the price of the global marker, Brent crude fell from a peak settlement of $US86.29 a barrel on October 3 to $US58.76 on November 28.
By the time trading had finished for November on Friday, the prices of Brent and the US marker crude – West Texas Intermediate had lost more than 20% over the month, the biggest monthly percentage loss in a decade as traders fretted over a signs of a growing glut in global supplies.
Hence the pressure for this week’s meeting to take a definitive step and cap product, as they did in 2016 and helped boost oil prices to those near four-year highs in early October from early 2017.
OPEC, especially Saudi Arabia and Russia seem prepared to ignore the constant hectoring from Donald Trump for lower oil prices.
That growing belief saw oil prices trim early falls on Friday.
Prices, however, significantly pared much of their early Friday losses as speculation has grown over a potential production cut by major oil producers, ahead of the OPEC meeting.
By the close of Friday’s session, West Texas Intermediate crude for January delivery in New York ended down 1% at $US50.93 a barrel after trading as low as $US49.65. The January contract rose about 1% for the week. However, WTI prices lost 20.9% in November.
In Europe, January Brent crude futures which expired at the end of the session, lost 80 cents, or 1.3%, to $US58.71 a barrel. It ended November down around 20.3%. February Brent settled at $US59.46, down 45 cents, or nearly 0.8%.
That has left Brent was down about 12% so far this year, as surging oil production in the US, Russia and among key members of OPEC has helped to create a glut in global markets.
Friday saw Baker Hughes report that the number of active domestic rigs drilling for oil rose by 2 to 887 last week. That came after another rise in US oil stocks – for the 10th week in a row. They rose 3.6 million barrels to an estimated 450.5 million – just above the five year average for stocks according to the Energy Information Administration (EIA).
