Oil is headed for its biggest weekly gain in 15 months after OPEC approved its first supply cut in eight years, with attention now shifting to the deal’s implementation and how producers outside the group will react to any price rally.
Futures were little changed in New York and poised for an 11 percent weekly gain. OPEC’s three largest producers — Saudi Arabia, Iraq and Iran — overcame disagreements to reach Wednesday’s pact to reduce the group’s output by 1.2 million barrels a day, while Russia pledged a cut of as much as 300,000. The deal will accelerate the decline of global stockpiles, Secretary-General Mohammad Barkindo said in a Bloomberg TV interview Thursday.
The Organization of Petroleum Exporting Countries set a collective output target at the lower end of the range outlined two months ago in Algiers, sending oil prices above $50 a barrel and prompting predictions of a possible rally to $60 from Goldman Sachs Group Inc. and Morgan Stanley. Yet some analysts warned the surge in prices may encourage higher output from producers outside the group, including in the U.S. The last time the bloc set a collective quota, members exceeded it for 20 of the 24 months before the cap was scrapped at the end of 2015.
“The decision has removed a lot of downside risk from the market and we’ll probably sniff at $60 even this year,” said Bjarne Schieldrop, chief commodities analyst at SEB AB bank in Oslo. “The OPEC decision is bullish for first half of 2017 and bearish for the second half because higher prices will bring back U.S. oil faster to the market. There will be a shale party.”
West Texas Intermediate for January delivery was down 2 cents at $51.04 a barrel on the New York Mercantile Exchange as of 9:04 a.m. in London. Prices gained 3.3 percent to $51.06 a barrel on Thursday, adding to Wednesday’s 9.3 percent surge. Total volume traded was about 74 percent above the 100-day average. Prices are poised for the biggest weekly gain since the week ended Aug. 28, 2015.
Brent for February settlement lost 10 cents to $53.84 a barrel on the London-based ICE Futures Europe exchange. The contract climbed 4.1 percent to $53.94 a barrel on Thursday. The global benchmark traded at a $1.85 premium to WTI for the same month.
Russia’s output cuts should be spread proportionally between the country’s producers, who have said they support the move, Energy Minister Alexander Novak told reporters Thursday. No oil company has so far explained how they will implement the cuts. State-controlled Rosneft PJSC, the country’s largest producer, is likely to bear most of the burden, according to Renaissance Capital.
OPEC’s cuts are intended to shrink the world’s bloated oil stockpiles back to a normal level, paving the way for prices to rise to more than $60 a barrel. “Our objective has been since Algiers to stimulate the joint deal with non-OPEC and accelerate the drawdown of stocks,” Barkindo said. “Inventories have continued to weigh down on prices” and all of OPEC wants to see prices higher, he said.
Kazakhstan will decide on cutting production after OPEC, non-OPEC talks later this month, the nation’s Energy Ministry press service said in a statement.
Russia and OPEC are discussing moving the date and location of talks with non-OPEC nations, with one option being to hold the discussions in Moscow on Dec. 10, said a person familiar with the matter.
BP Plc approved the Mad Dog Phase 2 oil project in the U.S. Gulf of Mexico — the scene of its biggest disaster six years ago — at less than half its original cost.
Harold Hamm, the billionaire oilman and energy adviser to Donald Trump, says foreign ownership of U.S. refineries is an issue the new administration needs to be concerned about.