MARKET WATCH: Crude oil prices continue climbing after OPEC agreement

Crude oil prices on the New York market gained for a third consecutive day Dec. 2, still drawing support from news that the Organization of Petroleum Exporting Countries agreed to reduce cartel production by roughly 1.2 million b/d if some non-OPEC countries cut by 600,000 b/d.

The US benchmark gained 12% for the week ended Dec. 2, marking the highest weekly percentage gain since 2009.

“It is a dangerous game that Saudi Arabia is playing,” said Barclays commodities research. “Should prices rise too high, then the amount of shale oil that comes into the market will eventually start to cut into their market share.” He referred to US shale producers.

OPEC’s agreement is effective Jan. 1, 2017. Ole Hansen, Saxo Bank head of commodity strategy, said the floor for Brent crude probably now is $45/bbl, but he suggested “the market may have to wait” to see $70/bbl oil again.

“OPEC has a poor history of compliance, and that may come back to haunt the producers once the initial euphoria and position adjustments have run their course,” Hansen said. He also questioned the validity of the non-OPEC reduction target of 600,000 b/d.

“Russia has never before supported a concerted production cut, and the market may adopt a ‘show-me-the-barrels-first’ approach before believing it will happen,” Hansen said.

Libya and Nigeria “both pose a challenge to the deal,” he added. Those countries were exempted from the production adjustment.

“Any increase from these two countries will naturally dilute the impact of the agreed production cuts,” Hansen said.

Energy prices

The January crude oil contracts on the New York Mercantile Exchange gained 62¢ on Dec. 2 to close at $51.68/bbl. The February contract rose 69¢ to $52.65/bbl.

The natural gas contract for January fell 69¢ to a rounded $3.44/MMbtu. The Henry Hub spot market for natural gas closed at $3.41/MMbtu, down 1¢.

Heating oil for January climbed 1¢ to a rounded $1.66/gal. Reformulated gasoline stock for oxygenate blending for January increased 1¢ to a rounded $1.56/gal.

The Brent crude contract for January on London’s ICE was up 52¢ to $54.46/bbl. The March contract rose 56¢ to $55.14/bbl. Gas oil for December closed Dec. 2 at $475/tonne.

The average price for OPEC’s basket of benchmark crudes on Dec. 2 gained $1.14 to $50.49/bbl.

Contact Paula Dittrick at paulad@ogjonline.com.

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