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OPEC+ roils markets
Oil jumps as OPEC+ delegates consider adding additional million bpd cut
Steve Sutherlin Petroleum News
The Organization of the Petroleum Exporting Countries and its allied exporting nations including Russia once again set the tone for oil traders in anticipation of the organization's rescheduled production-setting meeting Nov. 30. Prices moved higher as the meeting approached.
Alaska North Slope crude popped $1.22 in Nov. 29 trading to close at $85.16 per barrel, while West Texas Intermediate leapt $1.45 to close at $77.86 and Brent leapt $1.42 to close at $83.10.
Nov. 29 gains built on price increases Nov. 28 which saw ANS jump $1.54 to close at $83.95, as WTI jumped $1.55 to close at $76.41 and Brent lofted $1.70 to close at $81.68.
The Nov. 29 price spike came after the Wall Street Journal reported that delegates to the OPEC+ meeting said the group is considering new oil production cuts of as much as 1 million barrels per day.
A deal for further cuts isn't assured, and the prospect faces significant resistance within OPEC+.
A rollover of most existing output curbs is the most likely scenario, the delegates said, adding that Saudi Arabia is in favor of new cuts.
Prices rose Nov. 29 despite a U.S. crude inventory jump.
U.S. commercial crude oil inventories for the week ending Nov. 24 -- excluding Strategic Petroleum Reserve action -- jumped 1.6 million barrels from the previous week to 449.7 million barrels, slightly above the five-year average for the time of year, the U.S. Energy Information Administration said in its weekly status report. Total motor gasoline inventories also increased by 1.8 million barrels for the period to 218.2 million barrels, 2% below the five-year average for the time of year.
If the million bpd cut is adopted by OPEC+, it will be on top of special voluntary production cuts announced in June by Saudi Arabia and Russia of 1 million bpd and 300,000 bpd respectively.
The 1 million bpd under consideration in November exceeded analysts'projections.
"I was expecting half a million; 1 million is quite bullish, and we can see that in oil prices popping up," said Bjarne Schieldrop, chief commodities analyst at SEB. A cut of 1 million "won't necessarily drive it to $90 a barrel and above but it will prevent it from falling below $80."
Crude traders were far less bullish about the prospects for additional curtailment of supply on the part of OPEC+ when they learned just before Thanksgiving that the production setting meeting -- originally planned for Nov. 26 -- was postponed. Traders saw the postponement as a sign that OPEC+ members disagreed on further cuts and that the cohesion of the group was in jeopardy.
As a result, Thanksgiving was bracketed by three consecutive trading days of negative price action.
The red ink began on Nov. 22 when ANS fell 79 cents to close at $84.23, WTI fell 67 cents to close at $77.10 and Brent fell 49 cents to close at $81.96.
Losses accelerated Nov. 24 with ANS falling 94 cents to close at $83.29, as WTI plunged $1.56 to close at $75.54 and Brent lost $1.38 to close at $80.56.
ANS fell 88 cents Nov. 27 to close at $82.41, while WTI fell 68 cents to close at $74.86 and Brent fell 60 cents to close at $79.98.
Despite the down days, ANS on Nov. 29 closed at $85.16, 14 cents above its Nov. 21 close of $85.02.
On Nov. 29, ANS traded at a premium of $7.20 above WTI, and at $2.06 over Brent.
In early Asian trading Nov. 30 as Petroleum News went to press, WTI and Brent continued higher, trading in the vicinity of one half of one percent above their Nov. 29 closing prices.
Russia a wild card While several OPEC+ members including Nigeria, Angola and the United Arab Emirates are reluctant to cut their production quotas, Russia's path is uncertain for several reasons.
"Russia is the wild card in the OPEC+ group right now, because it really needs the cash," said Gary Cunningham, Tradition Energy director of market research. "If it is expected to take additional cuts, how does that balance against some of its budgetary needs given its military actions?"
Russia's cash flow has been restricted of late by dangerous shipping conditions.
Russia's transport ministry said Nov. 29 that weather in the Black Sea remained unfavorable for shipping, and that restrictions at Russian seaports would remain in place until weather conditions turned for the better, Reuters reported.
Severe stormy weather in the region disrupted up to 2 million bpd of oil exports from Kazakhstan and Russia, according to state officials and port agent data.
With an embargo in place against Russian oil by western nations, Russia has been reliant on China as a buyer of its crude.
But China's demand for oil is expected to slow in 2024 as it faces an economic slowdown.
"Overall economic expansion is expected to be tepid while more efficient energy use and increasing numbers of electric vehicles reduce oil consumption," the New York Times reported Nov. 29. "With production expected to increase outside of OPEC Plus, there will be little need for increased output from the producers group in the early part of 2024 or, perhaps, longer, analysts say."
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