Oil falls on doubts over extending output cuts, surprise rise in US crude stocks

CNBC

  • Oil prices fell on Wednesday on doubts OPEC and Russia will agree on an extended crude production cut
  • Traders said WTI was pulled down by a report from the American Petroleum Institute which showed U.S. crude inventories rose by 1.8 million barrels in the week to Nov. 24
  • OPEC will meet on Nov. 30 to discuss its policy

Oil fracking California

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Oil prices fell on Wednesday on doubts OPEC and Russia will agree on extending a crude production cut that the market has already priced in, and after a report of an unexpected rise in U.S. crude oil inventories.

U.S. West Texas Intermediate (WTI) crude futures were at $57.67 a barrel at 0427 GMT, down 32 cents, or 0.6 percent below their last settlement.

Traders said WTI was pulled lower by a report from the American Petroleum Institute (API) late on Tuesday that showed U.S. crude inventories rose by 1.8 million barrels in the week ended Nov. 24 to 457.3 million barrels.

Official U.S. oil inventory data is due later on Wednesday. WTI was also weighed down by the gradual restart on Tuesday of the Keystone pipeline, which supplies Canadian crude to the United States.

Brent crude futures, the international benchmark for oil prices,were at $63.14 a barrel, down 47 cents, or 0.7 percent.

Oil prices have received a broad lift this year, with Brent up by 40 percent since mid-2017, due to an effort by the Organization of the Petroleum Exporting Countries (OPEC) and a group of other producers, led by Russia, to withhold 1.8 million barrels per day (bpd) of output.

The deal expires in March 2018, but OPEC will meet on Nov. 30 and is expected to discuss ways of extending the cut.

Putin could be about to send the oil markets into a tailspin

Putin could be about to send the oil markets into a tailspin  

“Market whispers suggest Saudi Arabia and Russia are not yet fully coordinated,” said Stephen Innes, head of Asia-Pacific trading at futures brokerage OANDA.

OPEC and Russia are expected to extend their supply cuts for the whole of 2018 but with an option to review the deal in June, OPEC sources said on Tuesday, after Moscow expressed concerns the market could overheat.

Most analysts say an extension is needed to keep oil markets in balance, and also to keep the economies of oil exporting nations afloat.

“It is in Russia’s as well as OPEC’s best interest to support oil prices given their economies’ dependence on oil,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.

Not all analysts agree. “Given the agreement doesn’t expire for another four months, adding an additional nine months on that to the end of 2018 seems unnecessarily eager given the market does seem to be rebalancing,” said Greg McKenna, chief market strategist at AxiTrader.

A healthy global economy has also been helping oil markets back into balance after years of oversupply.

U.S. bank Morgan Stanley said global economic growth was “likely to gain momentum and breadth in 2018”.

Putin could be about to send the oil markets into a tailspin

CNBC

  • Oil traders eagerly anticipating an extension of the current OPEC-led production cut could be left sorely disappointed this week;
  • OPEC oil ministers will be in Vienna Thursday and there is widespread expectation that members will decide to extend oil output cuts beyond a deadline of March 2018.
  • However, there is some anxiety that the biggest non-OPEC producer that also signed up to the output cut, Russia, could pull out of an extension, sending markets sharply lower.

Alexei Druzhinin | TASS | Getty Images

Oil traders eagerly anticipating an extension of the current OPEC-led production cut could be left sorely disappointed this week, according market analysts including RBC Capital Market’s Helima Croft.

OPEC oil ministers will be in Vienna Thursday and there is widespread expectation that members will decide to extend oil output cuts beyond a deadline of March 2018, a move that has helped to stabilize prices. However, there is some anxiety that the biggest non-OPEC producer that also signed up to the output cut, Russia, could pull out of an extension, sending markets sharply lower.

Croft, the global head of commodity strategy at RBC, told CNBC that Russia — or specifically Russian President Vladimir Putin — was the wildcard that could disappoint markets.

“We still think the most likely outcome is to extend through 2018 because that was a Putin plan,” Croft said Tuesday. “It was Vladimir Putin who raised the issue of a full-year extension in October but since then a number of his corporates have said ‘we’re not so excited about that and we want to exit on schedule’ so the end of (the first quarter of 2018),” Croft added.

OPEC appeared to take Putin’s comments to heart with the cartel’s Secretary General Mohammad Barkindo saying in October that Saudi Arabia and Russia’s energy minister were taking their “cue” from Putin when discussing a possible extension to the end of 2018.

Mostly likely that OPEC extend cuts throughout 2018, says RBC strategy head

Mostly likely that OPEC extends cuts throughout 2018, Helima Croft says  

But, Helima Croft noted that Putin had led the market on with talk of a full-year extension, saying it could disappoint traders if Russia decided to break up its oil pact with Saudi Arabia.

“Before he (Putin) said that no one was thinking about a full-year extension and then OPEC went to work on a full-year extension so now that is the market expectation. So we’re set for a disappointment if Russia doesn’t show up for the ‘bromance’ (with Saudi Arabia) anymore,” she said.

‘Mission accomplished’

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. OPEC’s reluctance to cut output was also seen as a key reason behind the fall. But, the oil cartel soon moved to curb production — along with other oil-producing nations — in late 2016. The exporters reached the current deal last November and have already extended the agreement once through March 2018.

Now, oil markets are already showing jitters over the OPEC meeting this week, which will be attended by Russia. Oil prices slipped on Monday night amid the uncertainty and on Tuesday morning, a barrel of U.S. West Texas Intermediate (WTI) for January delivery was fetching $57.75 and a barrel of benchmark Brent crude was $63.62.

Expect Russia to delay making a decision at next OPEC meeting: Expert  

Putin is under pressure at home to not overdo the extension of output cuts, with a number of Russia’s largest oil companies reportedly showing displeasure at a possible extension to the current deadline of March 2018.

There are also differing budgetary needs between Russia and its OPEC ally Saudi Arabia that Putin has to consider. While Russia is basing its 2018 budget on an oil price of $40 a barrel, OPEC’s de facto leader Saudi Arabia needs a higher price per barrel to break-even, requiring $70 a barrel in 2018, according to the International Monetary Fund (IMF), and as such sees cutting for longer as a way to achieve this.

The 1.8 million barrels a day cut has been widely credited with setting oil markets on a path towards rebalancing, helping to balance the global supply of oil so that it matches demand, and helping to raise prices as a result.

“The Russians are essentially saying ‘mission accomplished’,” Helima Croft said.

“They’re saying that prices are where they want them and if we continue the cuts longer then all you’re going to do is give a lifeline to U.S. shale oil producers. Also Russian corporates have lower breakevens so from their standpoint, they are profitable in this price environment and they don’t want to forego future projects and they basically want to exit on schedule,” she said.

Why Venezuela is the country we all have to watch in 2018

Why Venezuela is the oil producer to watch in 2018: RBC  

“But the problem is that a lot of OPEC producers want higher prices for the duration of the year because they need it to fund their budgets,” she said.

What might prevent Russia from deciding against exiting the oil output cut deal as scheduled is that it is likely to cause a meltdown in markets, Croft said, an event that could be politically unpalatable if Putin does decide to run for the presidency again in Russia’s presidential election in March 2018. Likewise, Croft said that a sell-off in markets would not be popular in Saudi Arabia where Crown Prince Mohammed bin Salman is overseeing a reform drive to reboot the economy.

“If we don’t get the full-year (extension) and they exit at the end of the first quarter as scheduled I think it’s going to be a selling signal and if you’re Vladimir Putin and you’re going into March elections, do you want an oil price sell-off right before you’re poised for the polls?,” she said.

“(And) for Saudi Arabia, now is not the time to have another post-OPEC sell-off. Mohammed bin Salman is pressing ahead with an incredibly ambitious reform effort and $60 Brent provides the enabling environment for many of those key reforms, it keeps the population as feeling like everything is going to be OK … Now is just not the time for a sell-off for Saudi Arabia,” she added.

Crude Oil Prices – Weekly Outlook: Nov. 27 – Dec. 1

© Reuters.  Oil scores weekly gains ahead of OPEC meeting © Reuters. Oil scores weekly gains ahead of OPEC meeting
Investing.com – Crude oil prices finished higher in an abbreviated session on Friday, with the U.S. benchmark surging to its best level since July 2015, as the shutdown at North America’s Keystone pipeline continued to cut deliveries to storage facilities.

U.S. West Texas Intermediate (WTI) crude futures rose 93 cents, or around 1.6%, to end at $58.95 a barrel by close of trade, levels not seen since the summer of 2015.

Meanwhile, Brent crude futures, the benchmark for oil prices outside the U.S., tacked on 31 cents, or roughly 0.5%, to settle at $63.86 a barrel.

Trading in crude futures settled an hour earlier on Friday, at 1:30PM ET, following the observance of Thanksgiving in the U.S. on Thursday.

For the week, WTI gained about 4.2%, while Brent marked a climb of about 1.8%.

The disruption to the Keystone pipeline connecting Canada’s Alberta oil sands to U.S. refineries has reduced the usual 590,000 barrel-per-day flow to U.S. refineries, driving down inventories at the storage hub of Cushing, Oklahoma

Flow from the pipeline, which was shut on Nov. 16 following a 5,000-barrel spill in South Dakota, was expected to be reduced by 85% through the end of November, according to line operator TransCanada.

Crude prices were further supported by growing signals that the Organization of Petroleum Exporting Countries (OPEC) and its allies will agree to prolong supply curbs when producers meet in Vienna at the end of the month.

Russia said on Friday it is ready to support extending a deal among oil producers on cutting output, but made no mention of how long this should last beyond its March expiry.

Under the original terms of the deal, OPEC and 11 other non-OPEC producers, led by Russia, agreed to cut output by about 1.8 million barrels per day for the first six months of 2017. The agreement was then extended back in May of this year for a period of nine more months until March 2018.

The OPEC-led production cuts have been one of the key catalyst supporting the recent rally in oil prices amid expectations that rebalancing in crude markets are well underway.

In other energy trading, gasoline futures tacked on 2.0 cents, or 1.1%, to end at $1.788 on Friday. It closed around 2.5% higher for the week.

Heating oil advanced 2.0 cents, or 1.1%, to $1.952 a gallon, marking a 0.3% weekly gain and booking its seventh weekly climb in a row.

Meanwhile, natural gas futures plunged 15.5 cents, or 5.2%, to settle at $2.813 per million British thermal units. For the week, futures lost 9.2%, marking the largest weekly percentage drop since the period ended Feb. 3., amid forecasts for less heating demand through early December.

In the week ahead, market participants will focus on the Organization of Petroleum Exporting Countries highly-anticipated meeting on Thursday to see whether major producers plan to extend their current production-cut agreement.

Most market analysts expect the oil cartel to extend output cuts for a further nine months until the end of next year in a bid to reduce global oil inventories and support oil prices.

Energy traders will also eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Thursday

Major global oil producers are due to meet in Vienna in order to decide on extending their current output-cut deal.

The U.S. government will publish a weekly report on natural gas supplies in storage.

Friday

Baker Hughes will release weekly data on the U.S. oil rig count.

Crude retains support

The Oil and Gas Year (TOGY)

LONDON, November 24, 2017 – Crude oil prices remained supported on Friday, amid ongoing optimism over the rebalancing of the market and as the partial closure of the a key North-American pipeline sparked supply disruption concerns.

The U.S. West Texas Intermediate crude January contract was up 71 cents or about 1.22% at $58.73 a barrel by 09:50 a.m. ET (13:50 GMT), its highest since July 2015.

Elsewhere, Brent oil for January delivery on the ICE Futures Exchange in London was steady at $63.55 a barrel.

Trade volumes were expected to remain thin with U.S. markets open for only half a day on Friday after the Thanksgiving holiday on Thursday.

Prices increased following news that an oil spill forced the partial closure of the Keystone pipeline connecting Canadian oilfields with the U.S. on Friday.

The commodity was already supported after the EIA reported on Wednesday that crude oil inventories fell by 1.9 million barrels last week, marking the first decline in three weeks. That was compared with analysts’ expectations for a decline of 1.5 million barrels.

Prices received an additional boost from growing signals that the Organization of Petroleum Exporting Countries (OPEC) and its allies will agree to prolong supply curbs beyond March when producers meet in Vienna next week.

Top crude exporter Saudi Arabia is lobbying oil ministers to agree on a nine-month extension to OPEC-led supply cuts, sources familiar with the matter said, as Riyadh seeks to ensure a price-sapping glut is eradicated.

OPEC, together with a group of non-OPEC producers led by Russia, has been restraining output since the start of this year in a bid to end a global supply overhang and prop up prices.

The deal to curb output is due to expire in March 2018, but OPEC will meet on Nov. 30 to discuss the outlook for the policy.

Elsewhere, gasoline futures were up 0.08% at $1.779 a gallon, while natural gas futures lost 2.49% to $2.894 per million British thermal units.

US oil prices rise to two-year high on Keystone pipeline outage

CNBC

  • U.S. crude oil hit fresh two-year highs on Friday
  • The closure of the 590,000 barrels per day (bpd) Keystone pipeline following a spill last week has helped drive up U.S. crude
  • Markets have also been tightening due to an OPEC-led effort to withhold 1.8 million bpd of production
  • OPEC will meet on Nov. 30 to discuss its policy

An oil pump jack in the oil town of Gonzales, Texas.

Getty Images
An oil pump jack in the oil town of Gonzales, Texas.

U.S. crude oil rose to a two-year high on Friday, as the shutdown of a major crude pipeline from Canada to the United States tightened North American markets.

Trading activity is expected to be very low on Friday due to the U.S. Thanksgiving holiday.

U.S. West Texas Intermediate (WTI) crude futures were at $58.44 a barrel at 0550 GMT, up 42 cents, or 0.7 percent from their last settlement. Price rose to as much as $58.58 a barrel early on Friday, the highest since July 1, 2015.

Brent crude futures were at $63.42, down 13 cents.

In a sign of a tightening market, both crude benchmarks are in backwardation, where spot prices are higher than those for future delivery, which makes it unattractive for traders to store oil for later sale.

The closure of the 590,000-barrel-per-day (bpd) Keystone pipeline following a spill last week has driven up U.S. crude as stockpiles at the storage hub of Cushing, Oklahoma, have declined, traders said.

Markets have also been tightening globally due to an effort by the Organization of the Petroleum Exporting Countries (OPEC) and a group of other producers, including Russia, to withhold 1.8 million bpd of production.

The deal to restrict output expires in March 2018, but OPEC will meet on Nov. 30 to discuss its policy, and it is expected to extend the cuts.

“The agenda for the OPEC meeting is out and it’s only a 3-hour meeting. That suggests that a broad consensus has been built and the meeting is really just a rubber stamp to agree the extension of the Saudis’ favored 9-month extension period,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader, in a note on Friday.

Despite this expectation, McKenna said there was a slight risk of the collaboration derailing.
“Imagine though if all the tensions in the Middle East, between the Saudis and Iranians and between other Gulf states and Qatar, somehow derail the meeting. It’s a low probability, high-impact possibility,” he said.

RBC’s Helima Croft on her oil outlook

RBC’s Helima Croft on her oil outlook  

Overall, however, analysts said market fundamentals were balanced, supporting prices.

“Oil market fundamentals are improving with… robust global demand growth of around 1.7 percent this year,” U.S. investment bank Jefferies said.

“Growth in U.S. output of 900,000 bpd this year (and in 2018) should not overwhelm the market,” it added.

U.S. oil production has jumped by 15 percent since mid-2016 to a record 9.66 million bpd, thanks largely to shale drilling.

The increased production is likely to translate into higher exports, especially to Asia.

China’s Unipec, the trading arm of Asia’s largest oil refiner Sinopec, said on Friday that it would double the volume of crude oil it imports from the U.S. to around 12 million tonnes next year.

But Richard Robinson, manager of the Ashburton Global Energy Fund, warned U.S. output growth could slow as operators struggle to get enough sand and water, both of which are needed in the shale production process, known as fracking.

“Logistics are a big bottleneck,” he said.