Oil rises on expected OPEC cuts
US output has surged by almost a quarter since the start of the year.
Henning Gloystein
Oil prices rose on Friday amid expectations of supply cuts from OPEC, although record US production dragged.
Brent crude oil futures were at US$67.49 per barrel at 0747 GMT, up 87 US cents, or 1.3% from their last close.
Prices were mainly supported by expectations the Organisation of the Petroleum Exporting Countries (OPEC) would start withholding supply soon, fearing a renewed rout such as in 2014 when prices crashed under the weight of oversupply.
OPEC's de facto leader Saudi Arabia wants the cartel to cut output by about 1.4 million barrels per day (bpd), around 1.5% of global supply, sources told Reuters last week.
The Saudi's would ideally have Russia participate, as it did when supplies were jointly withheld starting from January 2017, although Russia has so far not committed to any renewed joint action. “The Saudis have already indicated they will reduce output by 500 000 bpd in December, and early indications are that OPEC will target 1+ million bpd of production cuts at the next general meeting on December 6,” US investment bank Jefferies said on Friday.
Morgan Stanley warned a cut by the Middle East-dominated producer group may not have the desired effect. “The main oil price benchmarks - Brent and WTI - are both light-sweet crudes and reflect this glut,” the US bank said.
“OPEC production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet.”
Due to the structural oversupply that has emerged in the market from record production by many countries, Morgan Stanley said that “OPEC cuts are inherently temporary [because] all they can do is shift production from one period to another”.
While OPEC considers withholding supply, US crude oil production reached another record two weeks ago, at 11.7 million bpd, according to US Energy Information Administration (EIA) data published on Thursday.
US output has surged by almost a quarter since the start of the year. The record output meant US crude oil stocks posted the biggest weekly build in nearly two years.
Crude inventories soared 10.3 million barrels in the week to Nov. 9 to 442.1 million barrels, the highest level since early December 2017.
This surge contributed to oil prices falling by around a quarter since early October, taking many by surprise.
“Oil bulls, us included, have capitulated and we no longer see oil climbing to US$95 per barrel next year,” Bank of America Merrill Lynch said in a note. While sentiment has turned bearish, some analysts warn that 2019 could be tighter than expected.
“We expect 2019 oil demand to reach 101.1 million bpd,” natural resources research and investment firm Goehring & Rozencwajg said, up from just under 100 million bpd this year.
At the same time, the firm said production outside North America was set to disappoint.
Add OPEC's expected supply cuts, and Goehring & Rozencwajg said “those investors who are able to adopt a contrarian stance ... and stomach the volatility ... are being presented with an excellent investment opportunity” to buy into oil after the recent slump.– Nampa/Reuters
Oil prices rose on Friday amid expectations of supply cuts from OPEC, although record US production dragged.
Brent crude oil futures were at US$67.49 per barrel at 0747 GMT, up 87 US cents, or 1.3% from their last close.
Prices were mainly supported by expectations the Organisation of the Petroleum Exporting Countries (OPEC) would start withholding supply soon, fearing a renewed rout such as in 2014 when prices crashed under the weight of oversupply.
OPEC's de facto leader Saudi Arabia wants the cartel to cut output by about 1.4 million barrels per day (bpd), around 1.5% of global supply, sources told Reuters last week.
The Saudi's would ideally have Russia participate, as it did when supplies were jointly withheld starting from January 2017, although Russia has so far not committed to any renewed joint action. “The Saudis have already indicated they will reduce output by 500 000 bpd in December, and early indications are that OPEC will target 1+ million bpd of production cuts at the next general meeting on December 6,” US investment bank Jefferies said on Friday.
Morgan Stanley warned a cut by the Middle East-dominated producer group may not have the desired effect. “The main oil price benchmarks - Brent and WTI - are both light-sweet crudes and reflect this glut,” the US bank said.
“OPEC production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet.”
Due to the structural oversupply that has emerged in the market from record production by many countries, Morgan Stanley said that “OPEC cuts are inherently temporary [because] all they can do is shift production from one period to another”.
While OPEC considers withholding supply, US crude oil production reached another record two weeks ago, at 11.7 million bpd, according to US Energy Information Administration (EIA) data published on Thursday.
US output has surged by almost a quarter since the start of the year. The record output meant US crude oil stocks posted the biggest weekly build in nearly two years.
Crude inventories soared 10.3 million barrels in the week to Nov. 9 to 442.1 million barrels, the highest level since early December 2017.
This surge contributed to oil prices falling by around a quarter since early October, taking many by surprise.
“Oil bulls, us included, have capitulated and we no longer see oil climbing to US$95 per barrel next year,” Bank of America Merrill Lynch said in a note. While sentiment has turned bearish, some analysts warn that 2019 could be tighter than expected.
“We expect 2019 oil demand to reach 101.1 million bpd,” natural resources research and investment firm Goehring & Rozencwajg said, up from just under 100 million bpd this year.
At the same time, the firm said production outside North America was set to disappoint.
Add OPEC's expected supply cuts, and Goehring & Rozencwajg said “those investors who are able to adopt a contrarian stance ... and stomach the volatility ... are being presented with an excellent investment opportunity” to buy into oil after the recent slump.– Nampa/Reuters
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