On Wednesday, November 25, international oil prices continued to rise, hitting a nine-month high since late February of this year. However, several pieces of news affecting oil prices today are mixed, and the answer may be revealed at the OPEC+ ministerial meeting next Monday and Tuesday.
On the one hand, according to three sources with knowledge of the matter, OPEC+, led by Saudi Arabia and Russia, is still inclined to keep the current production cut agreement in place until the first quarter of next year, despite the recent strong move higher in oil prices. At the same time, OPEC has begun to worry about losing market share to U.S. shale oil at high oil prices, and has therefore also signaled that it will not increase production cuts to support oil prices.
According to the report, OPEC admitted today that “the market situation indicates that the oil market has passed the inflection point and started to improve”; if the price of crude oil rises back to $65 per barrel, it is feared that U.S. shale oil extraction activities will also take the opportunity to rebound; therefore, OPEC+ is not expected to have a breakthrough in the oil production negotiations, and “it is not possible to increase the intensity of production cuts”.
Another source close to OPEC+ told Reuters that rising oil prices are linked to market sentiment and that the fact that a new crown vaccine is on the horizon will not change the producers’ alliance’s decision to favor an extension of the existing production cut agreement.
“We still need to extend the production cut agreement to establish solid market fundamentals to support oil prices, and by far the best option is to extend it for another three months.OPEC will make its decision based on supply and demand fundamentals, not on oil prices.”
Sources said the extension decision was based primarily on the possibility of a renewed fall in oil prices and an uncertain demand outlook during a resurgence of the epidemic; Russia may agree to extend the existing agreement until the first quarter of next year, and later did not rule out a decision on whether to extend it to the second quarter.
After an intended price war between Saudi Arabia and Russia in March of this year, OPEC+ finally reached a unified view in April and began the largest production cut in history in May at 9.7 million barrels per day. In August this year, the scale of this cut was narrowed to 7.7 million barrels per day, and from January next year, the original plan will be narrowed again to 5.7 million barrels per day, which means that the allied organization’s daily production increased by 2 million barrels, which is about 2% of the global demand before the epidemic.
An OPEC+ technical meeting will be held this week in preparation for a ministerial meeting early next week to discuss whether to extend the current production cut agreement into next year, while OPEC+ will meet from Nov. 30 to Dec. 1 to make a final decision on crude supply.
Previously, Christyyan Malek, head of oil and gas research at JPMorgan Chase, expected OPEC+ to postpone its plans to increase production by up to six months, with Saudi Arabia likely to offer deeper voluntary cuts by March next year, mainly because “oil and refined product inventories are not falling as fast as expected. Barclays also believes that OPEC+ will delay its production increase by three months.
Goldman Sachs appears to support a six-month extension of the current production cut agreement, but the bank’s analysts issued a report on Tuesday looking down on OPEC+’s future and goals, citing recent rumors that Saudi Arabia’s Gulf ally, the United Arab Emirates, is unhappy with the cuts and wants to reconsider its OPEC membership, while the cartel left OPEC last year, which, combined with increased production from Iraq and Libya, has split the organization.
“This ultimately reflects the difficult dual mandate that OPEC+ is trying to meet: to help rebalance the market after an unprecedented demand shock, but also to achieve higher oil selling revenues and market share in the medium term.”
Today’s release of U.S. commercial crude oil inventory data was not uniformly positive for oil prices.
According to official U.S. Energy Information Administration EIA statistics, U.S. commercial crude oil inventories fell by 754,000 barrels in the week ended Nov. 20, compared to an expected increase of 225,000 barrels and a previous increase of 769,000 barrels. However, gasoline inventories increased by 2.18 million barrels, higher than the expected increase of 1.15 million barrels, which brought the total U.S. commercial gasoline inventories to more than 230 million barrels, a seasonal high since 1994.
The analysis noted that this was the second straight week that U.S. EIA gasoline inventories have risen more than expected, and it is “worrisome” that inventories could continue to build against the backdrop of an epidemic that has limited Thanksgiving travel and represents a growing headwind for U.S. gasoline demand. U.S. gasoline demand is now well below fall 2019 levels and at a five-month low since June of this year.
As of midday U.S. trading, international oil prices maintained their four-day rally and surged to a nine-month high, up nearly 10% in the past four days, boosted by optimism about the imminent release of the new Corona vaccine and the prospect of a quick rebound in global oil demand.
But oil prices are still down 30% year-to-date, trapped in a technical bear market. As it is unlikely that any viable vaccine will be available for mass use in the next few months, this means that economic blockades and travel restrictions in major European and American countries will continue into next year.
U.S. oil WTI rose as high as $0.9 or 2% in Wednesday’s session, reaching a daily high of $45.81, the highest since late February. International Brent oil prices rose as high as $0.87 or 1.8 percent in mid-session to a daily high of $48.65, also a nine-month high.
Yesterday, WTI rose 5 percent intraday, touching the $45 round-digit level for the first time since March 6, closing up 4.3 percent at $44.91/barrel, a new high since March 6. Brent rose as high as more than 4 percent, also hitting the $48 round-digit level for the first time since March 6, and closed up 3.9 percent at $47.86/bbl, a new high since March 5.
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