Wednesday, December 4, 2019

Oil rises 3% ahead of OPEC output talks

GP: Azerbaijan Oil Industry 191008
Azeri oil workers operate a large field of drilling rigs on October 12, 2003 outside the capital city of Baku, Azerbaijan. Oleg Nikishin | Getty Images

Oil gained on Wednesday ahead of an expected extension to production curbs by OPEC and its allies, with further support from industry data showing a larger than forecast drop in U.S. crude stockpiles.

Brent crude futures were up $1.94, or 3.2%, at $62.77 a barrel. U.S. West Texas Intermediate (WTI) crude futures were up $1.86, or 3.3%, to $57.96 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) and allies that include Russia - a group known as OPEC+ - could approve deeper crude output cuts when they meet in Vienna this week.

Iraqi oil minister Thamer Ghadhban told reporters in Vienna on Tuesday that “a deeper cut is being preferred by a number of key members.”

There is still some market skepticism over a deepening of cuts, though it is accepted that the producer group is keen to support prices, with many analysts expecting an extension of the existing supply pact.

“Amid (the) trade war uncertainty, OPEC will be even more determined to maintain a floor on oil prices and will work to deliver precisely that outcome,” said Stephen Innes, chief Asia market strategist at AxiTrader.

OPEC members meet on Thursday, with the OPEC+ group meeting the following day. OPEC+ has been curbing supply since 2017 and is expected to keep the cuts in place to balance out record production in the United States.

U.S. crude oil inventories fell more than expected last week, according to the American Petroleum Institute (API). The API said crude stocks dropped by 3.7 million barrels, more than double the expected 1.7 million barrels.

“Tuesday’s inventory number from API won’t have done crude any harm ... Expectations for the U.S. Energy Information Administration release today are for a smaller drawdown, which could provide another boost for oil prices,” said Craig Erlam, senior market analyst at OANDA Europe.

Oil prices are being held back by the uncertainty over prospects for a trade deal between the United States and China. The dispute between the world’s two biggest economies has weakened the global economy and limited oil demand growth.

U.S. President Donald Trump on Tuesday said an agreement to end the trade conflict may have to be delayed until after the American presidential election next November.

Prices are likely to fall next year as oil supplies keep rising, outweighing any pick up in growth, Fitch Solutions said. It predicted Brent crude will drop to an average of $62 a barrels in 2020 and $58 in 2021, from a $64 average this year.

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