Oil moves up, buoyed by prospects for deeper OPEC+ output cuts

Oil futures moved up on Tuesday, buoyed by the potential for deeper production cuts when the Organization of the Petroleum Exporting Countries and its allies meet later this week.

Prices, however, saw only modest gains as President Donald Trump said it might be better to wait until after the 2020 election to complete a trade deal with China, which would feed uncertainty over energy demand.

“Energy traders are unlikely to see oil prices break above its recent trading range unless we see OPEC and its allies deliver deeper production cuts,” said Edward Moya, senior market analyst at Oanda.

“We should not be surprised if the Saudis lead the charge for higher oil prices,” he said in emailed commentary. “Too much is at stake for the Saudis with their Aramco IPO just around the corner.”

West Texas Intermediate crude for January delivery CLF20 was up 19 cents, or 0.3%, at $56.15 a barrel on the New York Mercantile Exchange after trading as low as $55.35. February Brent crude BRNG20, the global benchmark, added 9 cents, or 0.2%, at $61.01 a barrel on ICE Futures Europe.

“Brent crude could easily top $65 a barrel by the end of the week, but we should not see a major bull market as rising production [in] Norway and Brazil will mitigate any deeper production cuts that could possibly come out of the meeting,” said Moya.

Oil had briefly turned lower after Trump, speaking in London, said he had “no deadline” when it comes to completing long-running U.S.-China trade talks. “In some ways, I think it’s better to wait until after the election if you want to know the truth. But I’m not going to say that. I just think that,” Trump said.

Trump said the idea of holding off on a U.S.-China trade deal until after the 2020 presidential election had appeal, undermining market confidence that a deal may be done before fresh import tariffs are imposed on December 15.

Trump’s willingness to reopen the trade war on other fronts is also reviving concern about global economic growth and demand for oil.

On Monday, the President tweeted that he was bringing back tariffs on Brazilian and Argentina steel, while the administration also proposed tariffs of up to 100% on $2.4 billion in French imports.

Oil climbed on Monday, with expectations around this week’s meetings of OPEC and its allies providing some support. Reuters reported that Saudi Arabia is pressing the group, known collectively as OPEC+, to add 400,000 barrels a day to existing cuts of 1.2 million barrels a day. The pact on existing cuts runs until the end of March.

“The proposal to deepen the production cuts is on the table but if ministers expect shale production growth to slow next year, they may not be so willing to do anything more than prolong the existing cuts,” said Marshall Steeves, energy markets analyst at IHS Markit.

“There may be an OPEC decision by Thursday but given the Russian reluctance to cut further, I think the OPEC+ Friday meeting might have more bearing on the market,” he told MarketWatch. “If they kick the can down the road to March, they will be looking at the global balance in the interim and whether or not crude oil prices break out of the recent range.”

Following the conclusion of the oil-producer meetings, “there will be the pressing concern over the U.S. and China trade dispute, which is still discouraging,” said Mihir Kapadia, chief executive of Sun Global Investments, in a note. “Talks are continuing to drag on and the work by OPEC and other parties to help rebalance markets will only go so far unless a phase one deal is reached soon.”

In other energy trade, January gasoline RBF20 was down 0.2% at $1.5702 a gallon, while January heating oil HOF20 rose 0.06% to $1.8871 a gallon.

January natural-gas futures NGF20 jumped 7.3% to $2.50 per million British thermal units.

Natural-gas prices are “climbing for a second consecutive day, recovering a portion of the heavy losses taken last week,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.

The price rise comes “despite expectations of another smaller-than-normal storage withdrawal to be announced for the week ended [Nov. 29] and short-term forecasts continuing to call for warmer-than-normal temperatures across the country,” she said.

MarketWatch

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya