WTI Oil Prices Rebound After Choppy Session; OPEC Meeting in Focus

The choppy trading came after prices tumbled more than 3 per cent on Friday as doubts grew over whether the Organization of the Petroleum Exporting Countries (OPEC) would reach agreement to help curb global supply overhang that has more than halved prices since 2014.

Accordingly Saudi Arabia, in an official letter to OPEC, has announced that it will not take part at the lower-tier talks on November 28 in Vienna ahead of the OPEC ministerial meeting on November 30 since “OPEC ministers first need to agree on cutting output and inform non-member countries about their agreement”.

“The latest headlines suggest that while there is a broad agreement on the rationale for a cut, political considerations and country level quota negotiations are so far preventing a deal from being reached”, the note said.

After seven hours of deliberation, the Organisation of Petroleum Exporting Countries (OPEC) has agreed to reduce oil production by around 1.2 million barrels per day from January 1, 2017. “It does seem as though Russian Federation will cut, which if implemented is also positive”. Algeria, acting as a go-between, offered an alternative that would see Iran freeze at 3.795 million, the delegates said.

Iraq, OPEC’s second largest producer which had previously resisted cuts, providing a hurdle to an agreement, agreed to reduce output by 200,000 bpd to 4.351 million bpd. Government data on Wednesday is forecast to show stockpiles gained 1.5 million barrels, according to a survey before an Energy Information Administration report.

Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State. A marathon meeting of OPEC experts on Monday failed to reach an agreement for OPEC ministers to discuss on Wednesday.

Underlining the significance of the meeting, Saudi oil minister Khalid Al-Falih spoke of a “critical day for us in OPEC”.

“The average Joe filling up his tank may notice in the next week or two that gas prices move higher by 5 to 15 cents a gallon just on the psyche of the deal”, said Patrick DeHaan, an analyst for GasBuddy, a site used to comparison-shop for gasoline.

According to the minister, Saudi Arabia expects the demand on its oil will increase in 2017.

Falih landed in Vienna on Tuesday evening, leaving little time for traditional pre-meeting discussions with other ministers.

“The feeling today is mixed”, Indonesian Energy Minister Ignasius Jonan told reporters on Tuesday when asked about the prospects of a deal. “I don’t know. Let’s see”.

Libya ramped up production to over half a million barrels a day in October – but that’s still just a third compared to the 1.6 million it pumped in June 2010 prior to the Arab Spring revolution in the Middle East.

Iran was the major victor out of the deal being allowed to increase its production to 3.8 million barrels a day (MMbd).

That came despite a notable increase in stocks at the key Cushing, Oklahoma, delivery hub for USA crude futures, where inventories USOICC=ECI rose by 2.4 million barrels, EIA said.

“Global, and especially United States, crude oil inventories are now at extremely high levels after two years of massive oversupply”, Societe Generale analysts said.

Oil prices rallied for their best week in at least five years on Friday, steadying above $USUS51 a barrel, following OPEC’s decision to cut crude output to rein in a global glut that has weighed on prices for more than two years. The contracts were a fraction lower at $49.22 a barrel early on Thursday.

The conciliatory tone was in contrast with previous exchanges, when Iran and Iraq disagreed with Saudi Arabia over a way forward, making it hard for the group to achieve a consensus.

OPEC members will seek to give oil prices a boost in Vienna on Wednesday by nailing down their first output cut in eight years, although a deal is far from certain.

The absence of a deal would trigger an immediate selloff, they said, with crude oil CLF7, -1.83% likely to slip below $40 a barrel as speculative positions around that level start to unwind.