Oil Rises as Investors Eye OPEC Meeting
December 4, 2015 (Source: WSJ) — Oil prices rose in volatile trading Friday with traders taking positions as a key meeting by the Organization of the Petroleum Exporting Countries got underway in Vienna.
OPEC oil ministers are largely expected to stick to their year-old strategy of maintaining output in the face of a growing global glut and cheap oil.
Despite vocal opposition from member countries such as Venezuela and Algeria that are suffering from the low oil prices, analysts foresee OPEC’s most influential member Saudi Arabia remaining firm as it seeks to defend its share of the market.
“Some countries would like a production cut to spark higher prices, whilst other countries have a more long term agenda—making sure, oil revenue is maximized over decades rather than years or months,” said Michael Poulsen, oil analyst at Global Risk Management. “Oil market participants are on edge for whatever the outcome ends up being.”
Brent crude, the global oil benchmark, rose 1.1% to $44.34 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1.2% at $41.55 a barrel.
Oil prices were lifted on Thursday by news that Saudi Arabia would propose a production cut if non-OPEC members, such as Russia, also adhere to the cut.
Get our daily investorintel update
But on Friday, Saudi Arabia’s oil minister Ali al-Naimi said “it is baseless that there is a Saudi coordinated proposal to cut output.” The Kingdom is totally willing to cooperate with anyone prepared to balance the market, he said and offered to meet any minister who wanted to meet with him.
Most market participants expect OPEC to stick to its current quota of 30 million barrels a day. That number, though, is largely symbolic as the organization has been overshooting it for months. In September, OPEC produced 31.57 million barrels a day, according to its own data.
An internal OPEC document reviewed by The Wall Street Journal showed that, if current production remains unchanged, markets will still be oversupplied by 700,000 barrels a day in 2016—though that would be less than the glut of 1.8 million a barrel a day OPEC estimates for this year.
In the past, OPEC—which pumps about four out of 10 barrels of oil consumed each day around the globe—has throttled back on output to support prices. But in a break from that strategy, OPEC has held production steady since last year in a bid to defend—and extend—its share of the oil market.
The key issue for OPEC is Iran, which is expected to return to the global oil market after the lifting of the international sanctions early next year. Analysts say the country could quickly ramp up production by around 500,000 barrels, adding to the oversupply of crude.
“OPEC is a reactive organization, not a pro-active one, and that is why we maintain our view that if there is going to be a policy change this will come in the June 2016 meeting, when OPEC has had a few months to assess [Iran’s return],” said Marina Petroleka, chief oil analyst at BMI Research.
Another variable at Friday’s meeting is Indonesia, which returns as an OPEC member after a seven-year hiatus. This could prompt OPEC to raise its output target to 31 million barrels a day to accommodate for the extra Indonesian barrels. Still this wouldn’t change the global market balance nor would it signal a shift in OPEC’s market share policy, analysts say.
Investors will also pay attention to the latest U.S. jobs data for its effect on the dollar, the main currency for commodities. A strong report could add to the expectations that the U.S. Federal Reserve will raise its interest rates at its meeting this month, pushing up the value of the greenback.
Nymex reformulated gasoline blendstock—the benchmark gasoline contract—fell 0.1% to $1.30 a gallon. ICE gasoil changed hands at $409.75 a metric ton, up $8 from the previous settlement.
Raj Shah has professional experience working for over a half a dozen years at financial firms such as Merrill Lynch and First Allied Securities Inc., ... <Read more about Raj Shah>