US crude rises 2.2%, settling at $52.61, after OPEC and allies reach deal to cut output

CNBC

  • Oil prices jump after OPEC and its allies reach an agreement to slash production for the first six months of 2019.
  • OPEC producers agreed to cut output by 800,000 barrels per day, while allied nations including Russia will reduce production by 400,000 bpd.
  • The combined cut of 1.2 million bpd is in line with expectations and will take effect in January.

Here's the kind of deal OPEC could make

Here’s the kind of deal OPEC could make  

Oil prices surged higher on Friday after OPEC, Russia and several other producers reached an agreement to cut output next year in order to boost the market.

The new agreement comes at a time when the oil market is near the bottom of its worst price plunge since the 2008 financial crisis. Oil prices have dropped more than 30 percent from their highs in early October, hammered by concerns about oversupply, weakness in global markets and technical trading that exacerbated the slide.

OPEC and its allies agreed to throttle back output by 1.2 million bpd during the first six months of 2019.

The production cut is roughly in line with expectations heading into the meeting. Commodity watchers were expected the alliance to remove 1 million to 1.4 million bpd from the market.

Brent crude, the international benchmark for oil prices, rose $1.61, or 2.7 percent, to $61.67 a barrel. Brent earlier rose more than 5 percent to $63.73.

U.S. West Texas Intermediate crude futures ended Friday’s session up $1.12, or 2.2 percent, at $52.61 per barrel, off a session high of $54.22.

Energy research firm Wood Mackenzie forecasts the production cut will tighten markets by the third quarter of 2019 and cause Brent to rise back above $70 a barrel.

“It would help producers contend with the strength of US supply growth in 2019 when we expect a year-on-year increase of 2.4 million b/d in non-OPEC production as US supply continues to gain sharply,” said Ann-Louise Hittle, vice president of macro oils at Wood Mackenzie.

The United States is pumping at all time highs near 11.7 million bpd, according to preliminary government figures. Last week, the country exported more oil and refined fuels than it imported for the first time in decades.

Meanwhile, Russian production hit a post-Soviet era high at 11.4 million bpd this fall, and Saudi oil production rose to a record 11.1 million bpd in November.

The supply surge from the world’s top three oil producers is as forecasters warn oil demand growth will be softer than anticipated next year.

OPEC members agreed on Friday to cut production by 800,000 bpd, while non-OPEC producers aim to shave 400,000 bpd off the market.

Iranian oil minister confirms 1.2 million barrel oil cut

Iranian oil minister confirms 1.2 million barrel oil cut  

Top exporter Saudis Arabia will deliver the lion’s share of the OPEC cuts. Saudi Energy Minister Khalid al Falih on Friday said he expects the kingdom’s output to fall to 10.7 million bpd in December and 10.2 million bpd in January.

Russia’s pledge pencils out to a 228,000-230,000 bpd cut, Russian Energy Minister Alexander Novak said. However, Novak warned that Russia would reduce supply gradually due to climate conditions that affect its oil fields in the winter.

OPEC began capping supply in partnership with Russia and several other nations in January 2017 in order to end a punishing downturn in oil prices.

The alliance reversed course and agreed to hike output in June after it removed more barrels from the market than it intended, largely due to the ongoing free fall in Venezuelan output and supply disruptions in Libya.

The Trump administration lobbied for the midyear production increase as it prepared to restore sanctions on Iran, a policy that has pushed up oil prices throughout much of 2018. Trump has sought to blame OPEC for rising oil prices, ordering the cartel to take action to cut the cost of crude several times this year.

On Wednesday, Trump tweeted that he hoped OPEC would not restrict supply and instead keep oil flowing “as is.”

Oil drops as OPEC makes supply cut dependent on Russian support

CNBC

  • International Brent crude oil futures fell below $60 per barrel early in the session, trading at $59.50 per barrel at 0144 GMT.
  • The OPEC meeting in Vienna ended without an announcement of a decision to cut crude supply.
  • Oil producers have been hit by a 30-percent plunge in crude prices since October as supply surges just as the demand outlook weakens amid a global economic slowdown.

Oil prices fell on Friday, pulled down by OPEC’s decision to delay a final decision on output cuts, awaiting support from non-OPEC heavyweight Russia.

International Brent crude oil futures fell below $60 per barrel early in the session, trading at $59.50 per barrel at 0144 GMT, down 56 cents, or 0.9 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $51.24 per barrel, down 25 cents, or 0.5 percent.

The declines came after crude slumped by almost 3 percent the previous day, with the Organisation of the Petroleum Exporting Countries (OPEC) ending a meeting at its headquarters in Vienna, Austria, on Thursday without announcing a decision to cut crude supply, instead preparing to debate the matter on Friday.

“OPEC has decided to meet Friday again…(as) Russia remains the sticking point,” said Stephen Innes, head of trading for Asia/Pacific at futures brokerage Oanda in Singapore.

Analysts still expect some form of supply reduction to be decided.

“We are beginning to witness the outline of the next iteration of production cuts, with OPEC conforming to cut its own production by around 1 million barrels per day, with the cartel lobbying non-OPEC members to contribute more,” Japanese bank MUFG said in a note.

Supply surge, price plunge

Oil producers have been hit by a 30-percent plunge in crude prices since October as supply surges just as the demand outlook weakens amid a global economic slowdown.

Oil output from the world’s biggest producers – OPEC, Russia and the United States – has increased by 3.3 million bpd since the end of 2017, to 56.38 million bpd, meeting almost 60 percent of global consumption.

That increase alone is equivalent to the output of major OPEC producer the United Arab Emirates.

The surge is largely down to soaring U.S. crude oil production, which has jumped by 2.5 million bpd since early 2016 to a record 11.7 million bpd, making the United States the world’s biggest oil producer.

As a result, the United States last week exported more crude oil and fuel than it imported for the first time on records going back to 1973, according to data released on Thursday.

Oil prices down on surging output, but Iran sanctions loom

CNBC

  • Crude output from Russia, the U.S. and Saudi Arabia surged in October.
  • The sharp increase in supply comes ahead of U.S. sanctions on Iran which are due to go into effect next week.

Oil prices fell on Friday as surging output by the world’s three largest producers outweighed supply concerns from the start of U.S. sanctions next week against Iran’s petroleum exports.

Front-month Brent crude futures were at $72.60 per barrel at 0441 GMT on Friday, down 29 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 24 cents, or 0.4 percent, at $63.45 a barrel.

Brent has fallen by over 12 percent since the beginning of October, while WTI has lost more than 13 percent in value.

“More troubling… is the shift in structure towards contango,” U.S. investment bank Jefferies said on Friday.

Contango implies oversupply as it means prices for future delivery are higher than for immediate dispatch.

This makes it attractive for traders to store oil for later sale, although Jefferies said “spreads are still insufficient to encourage physical storage.”

Prices for April 2019 delivery are around 20 cents above January.

Downward pressure on oil is also visible in the physical market, where Saudi Arabia is expected to cut December crude prices amid higher supply and a glut in refined products that has eroded refinery profits.

The Organization of the Petroleum Exporting Countries (OPEC) boosted oil production in October to 33.31 million barrels per day (bpd), a Reuters survey found this week, up 390,000 bpd from September and the highest by OPEC since December 2016.

In the United States, crude production has established itself well over 11 million bpd, and the U.S. is now running neck and neck with Russia for the title of top producer.

Russian production has risen to record high of 11.41 million bpd in October, up from 11.36 million bpd in September.

With Saudi Arabia pumping 10.65 million bpd in October, combined output from the top-three oil producers is at a record 33.41 million bpd, meaning that Russia, the United States and Saudi Arabia meet more than a third of the world’s almost 100 million bpd of consumption.

“This surge has driven the market into oversupply,” Jefferies said.

U.S. sanctions on Iran loom

Despite surging output, concerns lingered ahead of the start of U.S. sanctions against Iran’s petroleum exports from next week.

Iran’s biggest oil customers, all in Asia, are seeking sanction waivers.

“Potential waivers appear targeted at India and South Korea, and they require some reductions over current import volumes while still allowing oil to flow,” said Clayton Allen of Height Securities.

“We think Trump will agree to China importing some volumes, similar to the treatment that India and South Korea receive,” he said.

Japan is seeking a similar deal.

Despite these efforts, analysts said any potential Iranian oil sanction waivers would likely only be temporary.

“The U.S. may use waivers to slow-walk implementation, but these will not apply indefinitely,” he added.

Goldman Sachs said it expects Iran’s crude oil exports to fall to 1.15 million bpd by the end of the year, down from around 2.5 million bpd in mid-2018.

“We still expect that the global oil market will be in deficit in 4Q18,” the U.S. bank said.

By the end of 2019, however, Goldman expects Brent to fall to $65 a barrel, largely due to “the unleashing of Permian (U.S. shale) supply growth once new pipelines come online.”

Oil rises ahead of U.S. sanctions on Iran, but outlook for 2019 less certain

CNBC

  • U.S. sanctions on Iran are set to go into effect in November.
  • Financial markets have built up large long positions in anticipation of more increases in prices.

Oil prices rose on Friday as traders anticipated a tighter market due to U.S. sanctions against Iran’s crude exports, which are set to start next month.

International benchmark Brent crude oil futures were at $84.98 per barrel at 0504 GMT, up 40 cents, or 0.5 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures were up 47 cents, or 0.6 percent, at $74.80 a barrel.

The gains helped claw back some of the losses from the previous session due to rising U.S. inventories and after Saudi Arabia and Russia said they would raise output to at least partly make up for expected disruptions from Iran.

“Brent front-month prices are up 6 percent over the last week as it becomes increasingly apparent that Iranian exports could fall below 1 million barrels per day in November,” said U.S. bank Jefferies on Friday.

U.S. sanctions will start targeting Iran’s crude exports from November 4, and Washington is putting pressure on governments and companies globally to fall in line.

“It now appears that only China and Turkey may be willing to risk U.S. retaliation by transacting with Iran,” Jefferies said.

The investment bank said there was currently enough oil to meet demand, but warned that “global spare capacity is dwindling to the lowest level that we can document … meaning any further supply disruptions would be difficult for the market to manage – and could lead to spiking crude oil prices.”

An expectation of tighter markets is fueling bullish financial oil market sentiment.

Financial traders have accumulated bullish long positions betting on a further rise in prices amounting to almost 1.2 billion barrels of oil.

Meanwhile, the number of short positions in the six most important petroleum futures and options contracts has fallen to the lowest level since before 2013, creating a near-record imbalance between bullish and bearish positions in financial crude markets.

“Bullish bets have increased substantially as markets are moving ahead of an impending shortfall from U.S.-Iran sanctions,” said Benjamin Lu of Singapore-based futures brokerage Phillip Futures on Friday.

There are, however, voices of caution.

“While upside price risks will prevail for now, fundamental data outside of Iran has not turned bullish in our view,” Goldman Sachs said in a note to clients dated Oct. 4.

“We expect fundamentals to gradually become binding by early 2019 as new spare capacity comes online … pointing to the global market eventually returning into a modest surplus in early 2019,” the bank said.

And while Goldman said there was still a “robust demand outlook”, there are increasing signs that high oil prices and declining emerging market currencies like India’s rupee or Indonesia’s rupiah are hitting fuel consumption.

Oil falls as Saudi and Russia quietly agree to output rise, US stocks swell

CNBC

  • Saudi, Russia agreed output rise without telling OPEC, according to sources.
  • On Wednesday, data from the Energy Information Administration showed that U.S. crude inventories rose by nearly 8 million barrels in the previous week to around 404 million barrels.

Oil prices on Thursday fell from four-year highs reached the previous session, pressured by rising U.S. inventories and after sources said Russia and Saudi Arabia struck a private deal in September to raise crude output.

Brent crude oil futures were trading at $85.85 per barrel at 0104 GMT, down 44 cents, or 0.5 percent, from their last close.

Brent on Wednesday hit a four-year high of $86.74 a barrel.

U.S. West Texas Intermediate (WTI) crude futures were down 30 cents, or 0.4 percent, at $76.11 a barrel.

“Data for last week showed a much more significant than expected … build in U.S. commercial crude (inventories), which generally suggests that oil prices should tumble,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

U.S. crude oil stocks rose by nearly 8 million barrels last week to about 404 million barrels, the biggest increase since March 2017, Energy Information Administration data showed on Wednesday.

U.S. weekly Midwest refinery utilization rates dropped to 78.9 percent, their lowest since October 2015, according to the data.

Meanwhile, U.S. crude oil production remained at a record-high of 11.1 million barrels per day (bpd).

“This on top of the other big news of the day from Riyadh that … Saudi Arabia and Russia will boost output,” Innes said.

Russia and Saudi Arabia struck a private deal in September to raise oil output to cool rising prices, Reuters reported on Wednesday, before consulting with other producers, including the rest of the Organization of the Petroleum Exporting Countries (OPEC).

Russia’s and Saudi Arabia’s actions come as markets have heated up ahead of U.S. sanctions against Iran’s oil sector, which are set to kick in from Nov. 4, and which many analysts expect to knock around 1.5 million bpd of supply out of markets.

On the demand side, there is increasing concern that high oil prices and weakening emerging market currencies are creating a toxic inflationary mix that could erode fuel demand and economic growth.

“We have been taking a very close look at the demand signals in the market, and what we have been seeing is not good, JBC Energy said on Wednesday in a note to clients.

The energy consultancy said it had revised its oil demand forecast downwards amid Brent prices above $80 and diving currencies in many emerging markets, as well as burgeoning product stocks and the ongoing Sino-U.S. trade dispute.

“We are not talking about cosmetic changes either. We have cut our forecast for 2018 demand growth by a whopping 300,000 bpd to below 1.1 million bpd,” it said.