Oil is on the move this morning, even surpassing levels we have not seen in weeks, actually… months. Renewed confidence stemming from both OPEC and non-OPEC members regarding an actual production freeze is propelling both WTI oil and refined products’ prices this morning. Information, leaks, and rumors regarding the production freeze meeting on November 30th in Vienna have been on the forefront of the energy bulletin the past two weeks, even overpowering such bearish sentiments as drilling rigs, the dollar index, and increased production world-wide.
Baker Hughes announced last Friday a nineteen rig increase here in the U.S. Only one of those nineteen were gas rigs, which is more in our geographic area, however this weekly increase of nineteen is the largest weekly increase of U.S. drilling rigs since summer of 2015. The rebound of crude oil prices stepping out of the $30’s has significantly helped influence big oil companies to resume drilling here in our nation. It seems that while these companies were in hibernation, during the period when oil prices were sub $35/bbl, their R&D departments created more efficient and economically suitable ways to drill and were quite eager to get back into the game. This significant increase in rig counts would fundamentally, and traditionally, put downward pressure on oil prices, however, being just over a week away from the OPEC meeting seems to be the only horse pulling the carriage.
The dollar rally is yet another fundamental going overlooked. As mentioned time and time again, the price of crude oil and the U.S. dollar index have an inverse relationship. Being that last Friday we witnessed the dollar index hit not only a 52-week high but a thirteen year high of 101.48, you’d think there would be significant downward pressure on oil. Nope.
Even though the greenback’s strength against 10 major currencies is hovering around an all-time high, it’s hard for the energy market to overlook the impact that rumors play. Russia, one of world’s top three oil producers, is fueling the fire. Alexander Novak, the Russian Energy Minister, was quoted by Bloomberg.com saying that a consensus is developing and Russia is considering freezing output for up to six months. As you can see from the chart below, Russia output has been on the rise as of late, and Russia agreeing to a production freeze would significantly help in bringing stability to oil prices and aid in mitigating the global oil supply-glut. This information regarding Russia has even given renewed hope to Algeria, whose energy minister is now more confident that an agreement will be made in Vienna.
WTI crude is currently up more than 4% and trading at $47.71. Refined products are following suit with both RBOB and ULSD up $0.0709 and $0.0740 respectively.