MARKET WATCH: Crude prices up again on rising confidence for output limits

Crude oil futures contracts for front-month delivery on the New York Mercantile Exchange fell slightly on Dec. 15 following news of interest rate hikes by the US Federal Reserve (OGJ Online, Dec. 14, 2016). But prices were gaining again early on Dec. 16 as analysts and traders showed increasing confidence that output limits by major producers will be implemented as planned.

State-owned oil firms in the Organization of Petroleum Exporting Countries from Saudi Arabia and Kuwait reportedly took the first steps toward carrying out the pact by telling their customers to expect production cuts starting in January. Those countries have respectively pledged to cut 486,000 b/d and 131,000 b/d.

OPEC together has agreed to reduce production by 1.2 million b/d for 6 months starting Jan. 1, and some non-OPEC countries have agreed to cut production by 558,000 b/d (OGJ Online, Dec. 13, 2016). The cartel’s output increased 150,000 b/d in November to 33.87 million b/d, according to its Monthly Oil Market Report (OMR) released this week.

Russian Energy Minister Alexander Novak, the primary force behind a non-OPEC agreement, said on Dec. 15 that his country has reached a framework agreement with its oil firms regarding a collective output reduction. Russia’s part in production deal entails a 300,000-b/d cut.

OPEC’s OMR indicates Russian output in November stood at 11.29 million b/d, up 400,000 b/d year-over-year. On average this year, Russian output is expected to increase 200,000 b/d to 11.05 million b/d.

Goldman Sachs, meanwhile, has revised its second-quarter West Texas Intermediate oil-price forecast to $57.50/bbl from $55/bbl, and expects $55-60/bbl oil prices thereafter, citing better-than-expected compliance for the output cut. It lifted its second-quarter Brent projection to $59/bbl from $56.50/bbl.

“Ultimately, our work on Saudi Arabia’s fiscal balance suggests that the kingdom has a strong incentive to cut production to achieve a normalization of inventories, even if it requires a larger unilateral cut, consistent with comments last weekend by the energy minister,” the investment bank said in a note.

Analysts and traders now await the release of Baker Hughes Inc.’s latest count of active drilling rigs in the US, an indicator of future production changes. Last week, the count jumped 27 units—the biggest increase since April 2014, months before the plunge in crude prices (OGJ Online, Dec. 9, 2016).

Data from the US Energy Information Administration for the week ended Dec. 9 show US Lower 48 crude production spiked 101,000 b/d to bring the overall US average to 8.796 million b/d, down 380,000 b/d year-over-year. The agency expects overall output to average 8.9 million b/d in 2016 and 8.8 million b/d in 2017.

Energy prices

The January crude oil contract on the New York Mercantile Exchange declined 14¢ on Dec. 15 to close at $50.90/bbl. The February contract decreased 12¢ to $51.97/bbl.

The natural gas contract for January lost 10.6¢ to a rounded $3.43/MMbtu. The Henry Hub gas spot price closed at $3.55/MMbtu, up 3¢.

Heating oil for January was virtually unchanged at a rounded $1.64/gal. Reformulated gasoline stock for oxygenate blending for January gained about a penny to a rounded $1.54/gal.

The Brent crude contract for February on London’s ICE rose 12¢ to $54.02/bbl. The March contract increased 6¢ to $54.71/bbl. Gas oil for January fell $13.50 to settle at $474.75/tonne.

The average price for OPEC’s basket of benchmark crudes for Dec. 15 was $50.96/bbl, down 87¢.

Contact Matt Zborowski at

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