Oil futures moved sharply higher late in Thursday’s trading session, sending the U.S. benchmark up by nearly 3%, after a news report said that Saudi Arabia plans to cut shipments to U.S. refiners to avoid an expansion of U.S. stockpiles.
Oil prices had already been moving up as traders pored over data showing a rise in monthly OPEC output, as well as a recent report of a weekly decline in U.S. crude supplies and production. Price gains intensified after a report from Bloomberg said Saudi Aramco warned U.S. refiners to brace for a steep drop in cargoes next month, citing people briefed on the plans of the state-controlled oil company.
Against this backdrop, West Texas Intermediate crude for January delivery rose $1.43, or 2.8%, to settle at $52.58 a barrel on the New York Mercantile Exchange. Global benchmark February Brent crude added $1.30, or 2.2%, to end at $61.45 a barrel on ICE Futures Europe. “The headlines regarding Saudi Arabia reducing exports…were a key fundamental catalyst behind today’s rally,” Tyler Richey, co-editor of the Sevens Report, told MarketWatch. “If exports were reduced, the global supply and demand imbalance may swing further in favor of the bulls than currently expected, and futures responded accordingly.”
Meanwhile, in its closely watched monthly oil market report, the International Energy Agency said crude output by OPEC rose by 100,000 barrels a day on month to reach 33.03 million barrels a day in November. Saudi Arabia — the de facto head of OPEC — churned out 410,000 barrels a day to a historic high of 11.06 million barrels a day. OPEC’s output was also bolstered by record production from the United Arab Emirates, whose output climbed by 110,000 barrels a day to hit 3.33 million barrels day, surpassing Iran to become the group’s third-largest producer. Gains from Saudi Arabia and the U.A.E. offset steep declines in Iran, which were the result of U.S. sanctions against the Islamic Republic’s oil industry, the IEA said.But the agency’s report stands in contrast to OPEC’s own monthly oil market report, which was released Wednesday and showed a slight decline in the cartel’s November output despite ballooning Saudi production. Both reports come less than a week after OPEC agreed with its nonmember partner producers — led by Russia — to collectively cut crude output by 1.2 million barrels a day starting in January. OPEC is slated to curb production by 800,000 barrels a day, while Russia and nine allied producers will shoulder the remainder of the cuts. The announcement followed a roughly 30% plunge in crude prices from a four-year high in early October until late November.
Meanwhile, traders, citing a Bloomberg report, said Iran’s oil minister Bijan Zanganeh has reported serious political disagreements within OPEC, even as group last week reached the deal to cut production. The report raised market doubts about the ability of members to adhere to the deal and curb global oversupply. The oil official has also joined Twitter, striving, he says, for more transparency even though the social media service is officially banned in Iran. “We expect most of the agreed production cuts to be implemented, which will eliminate the market oversupply during the course of the year and help Brent gain a foothold again. We envisage a Brent price of $70 per barrel at the end of 2019, and indeed at the end of 2020,” said commodities analysts at Commerzbank, in a note. “That said, OPEC itself raises doubts in its monthly report as to whether the agreed cuts will be sufficient. After this year’s non-OPEC production was upwardly revised by 190,000 barrels, chiefly because of Russia — it is now set to soar by 2.5 million barrels per day year-on-year — it is likely to meet all of the growth in global demand,” the Commerzbank analysts said.
For its part, the Energy Information Administration on Wednesday showed domestic crude supplies declined for a second week in a row, by 1.2 million barrels for the week ended Dec. 7. But that was by much less than the 2.8 million-barrel decline expected by analysts and traders surveyed by The Wall Street Journal.
