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Oil prices rally by 4% Monday as Russia, Saudis signal output curbs

By Barbara Kollmeyer / MarketWatch

Petroleumworld 12 03 2018

Oil prices settled with a 4% gain on Monday as optimism ahead of an OPEC meeting grew after Russian President Vladimir Putin said he and Saudi Crown Prince Mohammed Bin Salman agreed to extend output cuts on the sidelines of the weekend G-20 summit.

Also boosting crude, Canada's oil-rich Alberta province announced surprise output curbs. Meanwhile news that U.S. and China agreed steps to thawing of trade tensions was lifting perceived riskier assets across the board.

West Texas Intermediate crude for January delivery CLF9, +0.59%  surged by $2.02, or 4%, to settle at $52.95 a barrel on the New York Mercantile Exchange. The contract rose about last 1% last week, but for the month of November tumbled 22%, the biggest monthly fall since October 2008, amid concerns about a global crude glut.

Global benchmark February Brent crude LCOG9, +4.84%  jumped $2.23, or nearly 3.8%, to $61.69 a barrel. January Brent, which expired on Friday, also marked a 22% drop for November, and the biggest monthly percentage drop in 10 years.

Russia's Putin made the announcement in a press conference late Saturday, after a meeting with Bin Salman, though he said there was no final decision on volumes. The comments come ahead of the Thursday-Friday OPEC meeting in Vienna, which will likely decide whether output cuts are needed. Oil prices have dropped by a third since early October.

“We estimate that a cut in OPEC and Russia production of 1.3 [million barrels a day] will be required to reverse the ongoing counter-seasonally large increase in inventories and bring stocks back to their 5-year average level,” analysts at Goldman Sachs wrote in a note dated Monday.

The analysts also said they expect an announcement of an OPEC cut later this week to extend the rally in Brent that began late Sunday, “likely above the mid-$60 [a barrel] level.”

Meanwhile, in a surprise move, Qatar said Monday that it will pull out of OPEC by Jan. 1, 2019 , as it focuses on boosting natural-gas production. On Nymex, January natural gas NGF19, +1.01%  fell 5.9% to $4.339 per million British thermal units. The contract climbed 41% in November—the largest monthly rise in nine years.

Read: Qatar's OPEC exit raises the possibility of the oil cartel's demise, experts say

Jay Hatfield, portfolio manager of InfraCap's MLP ETF AMZA, +3.59% believes that Qatar has decided to leave OPEC “because the Saudis led a trade embargo against them.”

“We do not think that OPEC is at risk for a break up as the Saudis effectively control OPEC and usually take the brunt of cut backs so there is no incentive for any country to leave,” he added.

Another big boost for crude came after Sunday's unprecedented announcement by Alberta Premier Rachel Notley, who said she has ordered oil companies in the Canadian province to cut production by nearly 9% next year . Canada is the fourth-largest oil producer in the world.

“This is due to the local oversupply that has pushed the price of Canadian oil (Western Canada Select) to below $20 per barrel at times. Perhaps OPEC should therefore consider inviting Canada to its meeting on Friday,” said analysts at Commerzbank, in a note to clients on Monday.

A bilateral agreement between the U.S. and China to launch trade negotiations triggered a rally across a broad swath of assets on Monday, with Dow industrials futures YMZ8, -0.21%  up over 500 points, and the German DAX 30 index DAX, +1.85%  up 2.5% for its best one-day gain so far since April.

The U.S. postponed plans to lift tariffs on $200 billion in Chinese goods and China agreeing to buy more U.S. goods. If those talks fail the U.S. will go ahead with increasing the tariffs to 25% from the current 10%.

In other energy trading, January gasoline RBF9, +0.60% tacked on 2.1% to $1.431 a gallon, while January heating oil HOF9, +0.49% rose 3.2% to $1.888 a gallon. The December contracts for both products, which expired at Friday's settlement, saw monthly losses of around 18%.

Weekly data on U.S. petroleum supplies will be released on Thursday at 11 a.m. Eastern time, a day later than usual because of Wednesday's national day of mourning following the passing of former President George H.W. Bush on Friday.

CME Group CME, -1.04% said Sunday that U.S.-based equity and interest rate futures and options products will be closed Wednesday in observance. All other markets on CME Globex, which would include energy and metals futures, will remain open for regular trading Wednesday.


Story by Barbara Kollmeyer from MarketWatch.

12 03 2018 20:45 GMT

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