Morning Market Overview
New York Mercantile Exchange oil futures nearest delivery and the Brent contract on the Intercontinental Exchange rallied during the first business day of December, climbing on a 90-day truce between the United States and China amid their trade dispute, production cuts by Canada, and ahead of the end-week meeting by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers led by Russia aligned with OPEC in a production quota scheme.
On Sunday, Alberta Premier Rachel Notley announced the province would temporarily reduce production in January by roughly 325,000 bpd in an effort to draw down excess storage and boost oil prices in the region, that have languished amid a lack of takeaway capacity. On Friday (11/30), the spot value for Western Canadian Select was $21.93 bbl, a $36.35 discount to Brent, according to the Energy Information Administration. The announcement followed a meeting between Russian President Vladimir Putin and Saudi Arabian Crown Price Mohammed bin Salman on the sidelines of the weekend’s G20 international forum in Buenos Aires, Argentina. Putin said Russia would cooperate with OPEC regarding oil production cuts in 2019, improving the odds for a favorable deal to be reached in Vienna when OPEC+ meets Thursday-Friday.
An OPEC panel recommended a production cut of 1.3 million bpd from October output rates, which were 4% more than the 2016 Vienna agreement. Saudi Arabia has already said it would cut output 500,000 bpd in December, with Saudi production at 11.0 million bpd in November 1.0 million bpd more than the 2016 agreement. Russia’s vote of confidence helps the Saudis achieve their goal, saying last week they wouldn’t be the sole country making production cuts in 2019, when they expect world oil production to outpace demand by 1.0 million bpd.
While seeking a united front, Qatar has broken ranks, indicating yesterday its decision to withdraw from OPEC in January. Qatar produced 609,000 bpd of oil in October. Qatar’s decision could herald the demise of OPEC.