Oil futures struggled for direction Thursday, as a meeting of major producers appeared to be headed toward an agreement that would allow output to rise modestly beginning early next year in a gradual relaxation of existing production curbs.
Oil has lost ground this week after the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, postponed a Tuesday meeting that had been expected to see them agree to delay a relaxation of existing output curbs that have restrained production by 7.7 million barrels a day. Without a delay, those cuts would be relaxed by about 2 million barrels a day in January.
The Wall Street Journal reported early Thursday that OPEC+ members were closing in on an agreement to increase their collective oil output by as much as 500,000 barrels a day starting next month.
“We are expecting OPEC+ to announce a small increase in January, followed by a more increases throughout 2021,” Manish Raj, chief financial officer at Velandera Energy, told MarketWatch.
Meanwhile, Bloomberg News, citing comments from delegates, reported that OPEC+ is discussing a proposal that would see the group maintain current supply curbs in January, then an addition of about 500,000 barrels to the market each month from February to May.
Prices are generally unaffected since reports suggest an increase of only 500,000 daily barrels, Raj said, adding that the figure pales in comparison to the cuts currently in effect. “The bigger question is, how rapidly will the rest of curtailed barrels be brought online.”
West Texas Intermediate crude for January delivery
the global benchmark, was up 19 cents, or 0.4%, at $48.44 a barrel on ICE Futures Europe.
“Ahead of this week, expectations had grown that the cartel would sign off on an extension of the current production quotas into the first three months of next year,” James Swanston, a Middle East and North Africa economist at Capital Economics, wrote in a note Wednesday.
The plan, however, “has run into several hurdles,” he said. “While the cartel’s de facto leader, Saudi Arabia, has apparently rubber-stamped an extension, other key members such as the UAE have pushed back and called for better compliance.”
Some producers have argued that the rise in oil prices tied in part to optimism over progress toward a COVID-19 vaccine left room for some increase in output.
“The market has largely priced in rolling over current cuts for an additional three months, anything less than this will likely leave the market disappointed,” said Warren Patterson, head of commodities strategy at ING, in a note.
Still, “assuming that the meeting doesn’t descend into outright acrimony and that some sort of deal is eventually agreed, the latest reports point to a compromise of a small rise in output from the start of next year,” said Swanston. “The recent positive news on COVID-19 vaccines should give a lift to oil prices over the next 12 months.”
Prices for oil had posted a gain on Wednesday, buoyed by expectations that OPEC+ would extend current output cuts, as well as by data from the Energy Information Administration that revealed a second straight weekly decline in U.S. crude inventories. The EIA, however, also reported weekly increases in gasoline and distillate supplies.
Natural-gas futures continued to trade sharply lower after the EIA reported on Thursday that domestic supplies of natural gas edged down by 1 billion cubic feet for the week ended Nov. 27. On average, the data were expected to show a decline of 13 billion cubic feet for the week, according to analysts polled by S&P Global Platts.
January natural gas
lost 7.6% to $2.57 per million British thermal units. It was trading at $2.547 shortly before the supply data.