Light, sweet crude oil prices on the New York market soared more than $2/bbl as did Brent crude oil prices on the London market Sept. 28 as market participants digested the decision made by the Organization of Petroleum Exporting Countries to wait until Nov. 30 to act on a proposed production change.
Prices jumped because OPEC reportedly acknowledged the need to cut oil production although few details were available after a 4-hr informal meeting in Algeria.
The Wall Street Journal reported the cartel will consider cutting its total output to 32.5-33 million b/d, down from estimated levels of 33.2 million b/d during August.
Analysts noted it’s still uncertain whether the cartel actually will cut its collective production output. OPEC released no details Sept. 28 regarding which producing country might cut by how much to achieve an overall lower OPEC production total.
Barclays analysts said media reports indicate OPEC plans to appoint a committee to discuss production cuts and baseline levels.
Miswin Mahesh of Barclays in London said OPEC made “nothing more than a face-saving measure” that sets the stage for the Nov. 30 meeting in Vienna.
“Despite remaining uncertainty, the agreement still matters and bears a resemblance to the late 1990s,” Mahesh said in a research note. “It matters because it signifies that despite the Saudi-Iranian geopolitical tension, oil policy was able to remain separate from the broader political issues, for now at least.”
OPEC Conference Pres. Mohammed Bin Saleh al-Sada said the group’s expectations about the rebalancing process have shifted. His comment came in a speech before OPEC members met behind closed doors in Algeria on the sidelines of another energy conference.
Andy Brogan, EY partner and global oil and gas transaction advisory services leader, said, “It’s not a straight line from this announcement to permanently raised oil prices.” He noted the “announcement” has yet to be followed by actual production cuts.
Ole Hansen, Saxo Bank commodity strategy head, said the Sept. 28 announcement was easy compared with the hard bargaining ahead of OPEC members to reach an actual agreement. Hansen said it would be the first OPEC cut in production since 2008 if such an agreement materializes.
“Details…need to be sorted out in run up to the Nov. 30 OPEC meeting,” Hansen said, adding that Nigeria, Libya, and Iran are expected to gain exemptions from production cuts.
Saxo Bank maintained its short-to-medium forecast for crude oil to trade in a range of $45/bbl to low $50s/bbl. Hansen said that forecast remains unchanged following OPEC’s informal talks.
Energy prices
The November crude oil contract on the New York Mercantile Exchange rose $2.38 on Sept. 29 to close at $47.05/bbl. The December contract was up $2.41 to $47.65/bbl.
The natural gas contract for October dropped 4¢ at a rounded $2.95/MMbtu. On the spot market, the Henry Hub gas price declined 5¢ to $2.98/MMbtu.
Heating oil for October gained 8¢ to a rounded $1.49/gal. The price for reformulated gasoline stock for oxygenates blending was up 8¢ to a rounded $1.48/gal.
The November Brent crude contract on London’s ICE increased $2.72 to settle at $48.69/bbl and the December contract climbed $2.72 to settle at $49.24/bbl. The October gas oil contract settled at $416/tonne, up $6.
The average price for OPEC’s basket of benchmark crudes on Sept. 28 was $42.21/bbl, down 9¢.
Contact Paula Dittrick at [email protected].
