Oil Climbs as Saudis Show Commitment to Cut Output Before Talks

Updated on
  • Saudi Aramco customers said to receive notice of supply cut
  • 10 non-OPEC members said to attend meeting on Saturday

Oil Surges on Deeper Oil Cut Pledges

Oil advanced as Saudi Arabia was said to have informed its customers it will stand by its commitment to cut production before OPEC meets with producers from outside the group to discuss reductions.

Futures climbed 1.3 percent, extending Thursday’s 2.2 percent gain. Saudi Arabian Oil Co.’s customers have received notice that January crude shipments will be cut in line with the Nov. 30 OPEC agreement, a Gulf oil official said. Russia will fulfill its pledge to cut output by as much as 300,000 barrels a day if OPEC follows through on its commitment, according to a Russian government official familiar with the matter.

Ten non-OPEC nations are expected to attend the meeting with the Organization of Petroleum Exporting Countries in Vienna on Saturday, people familiar with the matter said. The group will accept natural declines from some nations, rather than insisting on active cuts, in its effort to secure a 600,000-barrel-a-day reduction from non-members, according to people familiar with the matter. Getting nations from outside the group to join in the cuts is important because an OPEC cut alone could fall short of the group’s goal to drain stockpiles.

"There’s a growing consensus that OPEC and non-OPEC countries will succeed in coming to an agreement tomorrow," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. "These Saudi notices to refiners that they are in the process of following through with the cuts makes the accord much more real than it has been."

West Texas Intermediate for January delivery rose 66 cents to $51.50 a barrel on the New York Mercantile Exchange. It’s the highest close since Monday when prices closed at a 16-month high of $51.79. Total volume traded was 29 percent above the 100-day average at 2:51 p.m. Prices slipped 0.3 percent this week.

OPEC Compliance

Brent for February settlement increased 44 cents, or 0.8 percent, to $54.33 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude closed at a $1.89 premium to February WTI.

Oil market volatility, as measured by the Chicago Board Options Exchange Crude Oil Volatility Index, has tumbled since the OPEC agreement. The index fell to the lowest since October Friday.

See also: OPEC output deal won’t be enough to drain oil stockpiles

Buyers of Saudi crude have been informed that the kingdom will stand by its promise to cut output by 486,000 barrels a day to just over 10 million, PIRA Chairman Gary Ross said in a note to clients. The cuts will mainly affect shipments to Europe and North America. Saudi Aramco will maintain full term-crude supplies to at least five Asian customers for January, said five officials at the region’s refineries.

Kuwait Petroleum Corp. said work is under way to reduce output starting in January, consistent with the OPEC deal, state-run news agency KUNA reported.

Other Producers

Russia sees a higher risk that OPEC might fall short of its commitment to cut after the group’s November output increase and will seek to address on Saturday how it will fully comply with the deal, the Russian official said, asking not to be identified in line with government policy. OPEC has agreed to trim 1.2 million barrels a day from January.

Azerbaijan, Kazakhstan, Oman, Mexico, Russia, Sudan, South Sudan, Bahrain, Malaysia and Equatorial Guinea are expected to attend Saturday’s meeting with OPEC in Vienna, people familiar with the matter said.

So far, only Russia and Oman have agreed to cut actual output, they said. Kazakhstan said freezing oil output at November levels may make sense, Interfax reported, citing Energy Minister Kanat Bozumbayev.

"There’s optimism about the OPEC-non-OPEC meeting," Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania, said by telephone. "There’s a lot of bullish money that’s being thrown in the market. It’s all Wall Street money."

Oil-market news:

  • Venezuela and Iran agreed to call an OPEC meeting for the first quarter of 2017, Venezuelan President Nicolas Maduro said on state television.
  • Hedge fund manager Pierre Andurand expects the combined output cut agreed to by OPEC and Russia will boost oil to $70 a barrel in the first half of next year.
  • Rigs targeting crude in the U.S. rose by 21 to 498 this week, the highest level since January, Baker Hughes Inc. said on its website Friday.

— With assistance by Rakteem Katakey

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE