Morning Market Overview

The new trading week will be starting with one major item on the agenda of all oil market participants… the outcome of Thursday’s (Nov 30) OPEC meeting. In fact, this has been the main topic of discussion for months with most market participants expecting the meeting to end announcing the current accord (set to expire in March of 23018) will be extended until the end of 2018. The risk in the market this coming week is to the downside as most are already expecting an extension and thus if there are any deviations to the market consensus selling will be deep and swift.

On Friday Reuter’s reported Russia is ready to support extending the production cutting accord. Last week Saudi Arabia also indicated their support for an extension. With Saudi the largest and most influential OPEC member and Russia the largest non-OPEC participant to the accord both signaling their support for an extension the meeting is likely to be very short and sweet with an extension announced. No surprises expected in our view. Adding support to oil prices last week (US crude in particular) was the ongoing shut down of the Keystone Pipeline due to a leak.

TransCanada is the operator of the Keystone pipeline which moves Canadian crude oil through Cushing into the USGC. It is still unclear when the line will be restarted with many expecting the line to remain shut down at least until the end of the month. The restart date has not been set or announced by TransCanada as of Friday. In the latest Baker Hughes report issued on Wednesday showed the number of rigs deployed to the oil sector increased modestly on the week and for the fifth weekly gain out of the last twelve weeks.

Even with a gain this week it still appears that the number of rigs deployed to the oil sector have topped out for the short term. Currently US production is now 48,000 bpd above the peak hit around the middle of 2015 and is 11.24 percent above last year for the same week. Any non-OPEC crude oil production gains will pressure OPEC to continue with a high compliance level as well as considering increasing the magnitude of the cuts if they expect the market to rebalance at a much faster pace than it has so far.