Last week’s OPEC-driven gains are continuing this morning as we see WTI crude up an additional 1%. However, a new hot topic could be the culprit to this morning’s rally. The Organization of the Petroleum Exporting Countries have invited non-members to attend a meeting on December 10th, also in Vienna, to discuss their supply cuts. These non-members, 14 in total whose production accounts for roughly a fifth of the world’s total, include nations such as Egypt, Mexico, Russia, and Oman.
As mentioned in length last week, OPEC has agreed to reduce output by 1.2 million bbls/day starting in January. This declared reduction was more than what was anticipated, which catapulted oil prices up 12% last week, the biggest gain in nearly six years. Additionally, Russia has pledged to curb its production by 300,000 bbls/day. These assertions have propelled WTI crude’s price upwards by more than 16% in the last four trading days, and prices may continue to rise as speculation surrounding this weekend’s OPEC/non-OPEC meeting blossom. The chart below details which members have been invited and how much each nation produces daily.
A side note to consider: Russia, who has proclaimed a willingness to cut production by 300,000 bbl/day is using November’s production as the baseline. However, according to Reuters.com, Russia’s November output of 11.21 million bbls/day is the highest production level seen in almost 30 years. To give comparison, Russia’s November output outpaced its August output by over 500,000 bbls. Therefore, what legitimate effect does a cut of 300,000 bbl/day actually have when based on record levels?
Moving on, Baker Hughes data shows U.S. oil rigs increased for a fifth week in a row to the highest number of rigs since January. Expect to see this number escalate again this week, as a surge in the price of oil typically stimulates an increases in rigs coming online. On that same note, many U.S. shale companies have used this OPEC-induced rally to increase their hedging and reduce their future oil price risk for both 2017 and 2018. According to Bloomberg.com, this vigorous selling of future oil contracts by U.S. oil producers can be viewed as the likelihood of increased production in 2017. This would in turn counterbalance the output cuts proposed by OPEC.
At post time, WTI is up $0.34 to $52.02, RBOB is down 61 points, and ULSD is up 56 points.