Oil Climbs as Scrutiny Shifts to Meeting on Non-OPEC Supply Cuts

  • OPEC said to accept natural decline as part of non-member cut
  • U.S. crude stockpiles at storage hub rise most since 2009: EIA

Will Opec Non-Members Agree to Cuts?

Crude climbed as investors shifted their focus to whether OPEC will be able to persuade other producers to commit to output cuts.

Futures rose as much as 2.3 percent in New York, paring a 3.9 percent loss over the previous two sessions. Prices tumbled Wednesday on the news that OPEC would be willing to count natural declines, rather than insisting on active cuts, in its effort to secure a 600,000 barrel-a-day output reduction from non-members, people familiar with the plan said before talks on Saturday. Crude inventories at Cushing, Oklahoma, the largest U.S. storage hub, rose the most since 2009, according to government data.

The Organization of Petroleum Exporting Countries agreed last week to trim its output for the first time in eight years, seeking to stem a supply glut and buoy prices. Non-member Russia pledged a cut of as much as 300,000 barrels a day. OPEC has invited 14 producers from outside the group to discuss further curbs at a Saturday meeting in Vienna.

"The market seems to be optimistic about this weekend’s meeting and about OPEC’s compliance with its agreement to cut output," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $133 billion of assets. "The market has turned positive and price declines will be followed by speculators building and rebuilding positions."

West Texas Intermediate for January delivery rose $1.07 to settle at $50.84 a barrel on the New York Mercantile Exchange. Total volume traded was 47 percent above the 100-day average at 3 p.m. Prices closed at a 16-month high of $51.79 on Monday.

Output Cuts

Brent for February settlement climbed 89 cents, or 1.7 percent, to $53.89 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $2.01 premium to February WTI.

The pending meeting has kept traders on edge. Futures in New York dropped from $50.54 a barrel to $49.77 and then rebounded to $50.41 in seven minutes as the Russian news agency ITAR-Tass issued a report saying the Saturday meeting may be postponed. The report was followed by one quoting the country’s oil ministry saying that the talks will take place as planned.

Oil market volatility, as measured by the Chicago Board Options Exchange Crude Oil Volatility Index, dropped about 36 percent since the OPEC agreement. The index slipped to the lowest since Oct. 25 Wednesday.

While OPEC expects that Russia will contribute half of non-OPEC production cuts, part of the further 300,000-barrel curbs required can come from natural declines, according to the people, who asked not to be identified as the talks are private. So far, only Russia and Oman have agreed to cut actual output, they said.

Market Struggle

"It’s looking more and more likely that there will be a deal this weekend," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "We’ve got a very-oversupplied global market while the guys at OPEC try to change that. This has led to a daily battle royal in the market."

The increase in supplies at Cushing, the delivery point for WTI, led to a widening of the contango in the market, Yawger said. The discount between WTI futures closest to delivery and those for delivery in coming months widened to the highest since April on Thursday. Stockpiles at the hub rose by 3.78 million barrels to 65.3 million last week, according to Energy Information Administration data on Wednesday.

Oil-market news:

  • Russia sold a 10.2 billion-euro ($11 billion) stake in Rosneft PJSC, its largest oil producer, to commodity trader Glencore Plc and Qatar’s sovereign wealth fund.
  • China crude imports rose to about 7.9 million barrels a day in November, up 16 percent from the previous month, according to customs data.
  • Explorer Cenovus Energy Inc. is moving forward with another expansion at its Christina Lake oil-sands complex in Alberta, the latest sign that the region’s drillers are on the mend after a price collapse two years ago.
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