MARKET WATCH: OPEC freeze speculation keeps oil prices volatile

Crude oil prices on the New York market on Nov. 22 relinquished some of the gains—and some of the accompanying optimism for an output limit from members of the Organization of Petroleum Exporting Countries—that came during the previous two trading sessions (OGJ Online, Nov. 22, 2016). The downward trend continued early Nov. 23 on a strengthening dollar.

The market’s mood this week has hinged on meetings by OPEC members in advance of their Nov. 30 summit in Vienna. Members have sought to resolve preexisting issues regarding production limits and data for individual countries with the intention of reaching a smoother agreement next week.

Skepticism lingers in some quarters as to whether OPEC will strike a deal or even follow through on a deal, actions that have been rare for the cartel in recent history. While the oil ministers of Iraq and Iran have recently stated their optimism about the likelihood of a deal taking place, the two countries have sought exemptions from production limits and remain primary obstacles to a firm agreement.

OPEC hopes to limit production at 32.5-33 million b/d. The cartel in October produced a record 33.64 million b/d as Nigeria, Libya, and Iraq all reported increases (OGJ Online, Nov. 11, 2016).  Member country Algeria has proposed a 4-4.5% cut for the group.

Meanwhile, another OPEC member adding to the global supply glut, Libya, has doubled its oil production to near 600,000 b/d since early September, according to a study by research and consulting firm Wood Mackenzie Ltd.

Given how far output had fallen since civil unrest began in 2011 following the capture and death of dictator Moammar Gadhafi, however, the North African nation won’t be bound by any production restrictions either. “The country will seek to recover its lost market share, notably in southern Europe where refineries prize its light, sweet blends,” WoodMac explained.

Signs the production gains could be sustained include “the demise of the widely disliked Petroleum Facilities Guard (PFG) in the east, military success against IS in Sirte, and western incentives to reverse Libya’s parlous state,” the firm said.

“Longer term, Libya will take significant time and investment to get back to prewar levels of 1.6 million [b/d],” said Martijn Murphy, WoodMac research manager. “Upstream facilities in the east have suffered much damage over the last 2 years, as have ageing midstream pipelines. Storage tanks will have to be rebuilt at Libya's largest oil port, As Sidra, following rocket attacks there.”

Some US stockpile relief

The US Energy Information Administration reported that US commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, fell 1.3 million bbl during the week ended Nov. 18 compared with the previous week’s total.

At 489 million bbl, US crude inventories are at the upper limit of the average range for this time of year.

Analysts and traders surveyed by The Wall Street Journal anticipated an 800,000-bbl increase for the week. Separate data from the American Petroleum Institute also showed a 1.3 million-bbl draw.

EIA’s Weekly Petroleum Status Report showed that total US motor gasoline inventories gained 2.3 million bbl last week, and are well above the upper limit of the average range. Distillate fuel inventories rose 300,000 bbl.

Heading into the Thanksgiving holiday weekend, US retail regular-grade gasoline averaged $2.16/gal, up just 6¢/gal from the same time last year and the second-lowest gasoline price since 2008, EIA also reported.

Traders and market observers in the US now await the Nov. 23 release of Baker Hughes Inc.’s latest US rig count, which will reflect a week of drilling activity shortened by the Nov. 24 holiday. With a 20-unit gain last week, the count made its largest jump since April 2014 (OGJ Online, Nov. 18, 2016).

US markets will be closed Nov. 24.

Energy prices

The January crude oil contract on the New York Mercantile Exchange declined 21¢ on Nov. 22 to close at $48.03/bbl. The January contract dropped 10¢ to $48.93/bbl.

The natural gas contract for December increased 3.2¢ to a rounded $2.98/MMbtu. On the spot market, the Henry Hub gas price was $2.74/MMbtu, down 6¢.

Heating oil for December edged up less than a penny to a rounded $1.53/gal. The price for reformulated gasoline stock for oxygenate blending for December rose 1.33¢ to a rounded $1.41/gal.

The Brent crude contract for January on London’s ICE gained 22¢ to $49.12/bbl. The February contract gained 14¢ to $50.11/bbl. The December gas oil contract fell $1.75 to $445.25/tonne.

The average price for OPEC’s basket of benchmark crudes on Nov. 22 was $45.25/bbl, up 91¢.

Contact Matt Zborowski at matthewz@ogjonline.com.

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