Oil prices move higher as traders pore over data showing a rise in monthly OPEC output

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December 13, 2018 12:08pm NYSE:OIH NYSE:USO

Oil Prices

From Myra P. Saefong & Rachel Koning Beals: Oil prices moved higher Thursday as traders pored over data showing a rise in monthly OPEC output, as well as a recent report of a weekly decline in U.S. crude supplies and production.

Record pumping from Saudi Arabia lifted overall oil production from the Organization of the Petroleum Exporting Countries in November, the International Energy Agency said Thursday. The news raised doubts about the efficacy of planned production cuts that are set to begin at the start of the new year.

However, U.S. government data Wednesday revealed a second weekly decline in U.S. crude supplies and a fall in weekly domestic production, offering some support to oil prices.

Against this backdrop, West Texas Intermediate crude for January deliveryCLF9, +1.62% rose 25 cents, or 0.5%, to $51.40 a barrel on the New York Mercantile Exchange.

Global benchmark February Brent crude LCOG9, +1.05%  added 32 cents, or 0.5%, to $60.47 a barrel on ICE Futures Europe.

In its closely watched monthly oil market report, the IEA said crude output by OPEC rose by 100,000 barrels a day on month to reach 33.03 million barrels a day in November. Saudi Arabia — the de facto head of OPEC — churned out 410,000 barrels a day to a historic high of 11.06 million barrels a day.

OPEC’s output was also bolstered by record production from the United Arab Emirates, whose output climbed by 110,000 barrels a day to hit 3.33 million barrels day, surpassing Iran to become the group’s third-largest producer. Gains from Saudi Arabia and the U.A.E. offset steep declines in Iran, which were the result of U.S. sanctions against the Islamic Republic’s oil industry, the IEA said.

The agency’s report stands in contrast to OPEC’s own monthly oil market report, which was released Wednesday and showed a slight decline in the cartel’s November output despite ballooning Saudi production.

Both reports come less than a week after OPEC agreed with its nonmember partner producers — led by Russia — to collectively cut crude output by 1.2 million barrels a day starting in January. OPEC is slated to curb production by 800,000 barrels a day, while Russia and nine allied producers will shoulder the remainder of the cuts. The announcement followed a roughly 30% plunge in crude prices from a four-year high in early October until late November.

Meanwhile, traders, citing a Bloomberg report, said Iran’s oil minister Bijan Zanganeh has reported serious political disagreements within OPEC, even as group last week reached the deal to cut production. The report raised market doubts about the ability of members to adhere to the deal and curb global oversupply. The oil official has also joined Twitter, striving, he says, for more transparency even though the social media service is officially banned in Iran.

“We expect most of the agreed production cuts to be implemented, which will eliminate the market oversupply during the course of the year and help Brent gain a foothold again. We envisage a Brent price of $70 per barrel at the end of 2019, and indeed at the end of 2020,” said commodities analysts at Commerzbank, in a note.

“That said, OPEC itself raises doubts in its monthly report as to whether the agreed cuts will be sufficient. After this year’s non-OPEC production was upwardly revised by 190,000 barrels, chiefly because of Russia–it is now set to soar by 2.5 million barrels per day year-on-year–it is likely to meet all of the growth in global demand,” the Commerzbank analysts said.

For its part, the Energy Information Administration on Wednesday showed domestic crude supplies declined for a second week in a row, by 1.2 million barrels for the week ended Dec. 7. But that was by much less than the 2.8 million-barrel decline expected by analysts and traders surveyed by The Wall Street Journal.

The report also showed a decline of 100,000 barrels to 11.6 million barrels in total domestic crude production. That was the first weekly decline since October, analysts at the Sevens Report wrote in a newsletter Thursday, but they noted that given a change in the way the EIA reports production, in increments of 100,000 as opposed to exact estimates, “the decline could have been a rounding error.”

“Bottom line, there were some bullish underlying developments in last week’s EIA data as there are signs that U.S. oil production growth may be slowing…and the stretch of builds in commercial crude oil stockpiles has apparently paused if not actually reversed,” they wrote.

Back on Nymex, January gasoline RBF9, +2.20%  rose 1.3% to $1.438 a gallon and January heating oil HOF9, +0.65%  fell 0.1% to $1.848 a gallon.

January natural gas NGF19, +0.46%  climbed by 1.5% to $4.198 per million British thermal units, looking to recoup some of its losses from Wednesday, when it dropped 6.2% to settle at $4.136–the lowest since Nov. 15, according to FactSet data.

The EIA on Thursday reported that domestic supplies of natural gas fell by 77 billion cubic feet for the week ended Dec. 7, nearly matching the average forecast from analysts polled by S&P Global Platts for a decline of 79 billion.

The United States Oil Fund LP (USO) was trading at $10.99 per share on Thursday morning, up $0.17 (+1.57%). Year-to-date, USO has declined -8.49%, versus a -0.11% rise in the benchmark S&P 500 index during the same period.

USO currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 108 ETFs in the Commodity ETFs category.

This article is brought to you courtesy of MarketWatch.

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