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Oil ends modestly higher after recent rally in lead-up to expected Saudi-Russia output cut

By Mayra P. Saefong / MarketWatch

Petroleumworld 12 04 2018

Oil futures ended Tuesday with a modest gain after a strong start to the week ahead of an OPEC meeting that is expected to result in a production cut.

That expectation was strengthened after Russian President Vladimir Putin said over the weekend that he and Saudi Crown Prince Mohammed bin Salman agreed to extend reductions while meeting on the sidelines of the G-20 summit. They formally meet later this week, with oil prices down some 30% from the four-year high struck in early October.

The CME's OPEC Watch Tool on Tuesday afternoon, however, pegged the probability of a “small production cut” at the Dec. 6 meeting at 59.2%—down from the 65.4% on Tuesday morning. The chance of little or no change to output was at 40.8%.

Read: Here's what's at stake in the oil market when OPEC and Russia meet

West Texas Intermediate crude for January delivery CLF9, -1.01%  rose 30 cents, or 0.6%, to settle at $53.25 a barrel, pulling back from a high of $54.55. It surged 4% Monday on the New York Mercantile Exchange. The contract tumbled 22% in November, the biggest monthly fall since October 2008.

Global benchmark February Brent crude LCOG9, -0.62%  tacked on 39 cents, or 0.6%, to $62.08 a barrel after a nearly 4% advance a day earlier. January Brent, which expired on Friday, also marked a 22% decline for November, and the biggest monthly percentage drop in 10 years.

Russia's Putin made the announcement to extend output cuts in a news conference late Saturday, after a meeting with the Saudi prince, though he said there was no final decision on the amount. The comments came ahead of the Thursday-Friday OPEC meeting in Vienna.

Plans for a broad output curb isn't a done deal, analysts caution. “There has been some confusion about who is supporting the cut and the amount of possible reductions, with reports even this morning that the decision could be delayed if Russia doesn't agree to cut substantially,” said Craig Erlam, senior market analyst at Oanda. “Coming in a week in which Qatar has announced it end its 57-year association with OPEC , it does suggest that the cohesion that made the last cut so successful is weakening.”

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

Qatar is going to focus on natural-gas production. On Nymex, January natural gas NGF19, +1.01%  rallied by 2.7% to $4.457 per million British thermal units after a nearly 6% drop in Monday trading.

Read Opinion: The lights could go out this winter if we close all the coal and nuclear power plants

Meanwhile, another big boost for crude this week 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.

What's more, a bilateral agreement between the U.S. and China to launch trade negotiations triggered a rally across a broad swath of assets on Monday, including oil, which is viewed as a so-called risk asset.

However, risk appetite appeared to cool Tuesday . as investors re-examined the details of an agreement by the U.S. to postpone plans to lift tariffs on $200 billion in Chinese goods, while Beijing agreed to buy more U.S. goods. If talks fail, Washington will proceed with tariff increases to 25% from the current 10%.

As for other energy trading, January gasoline RBF9, -1.10% tacked on 0.8% to $1.443 a gallon, while January heating oil HOF9, -0.56% rose 0.7% to $1.901 a gallon.

Among upcoming reports this week, the Energy Information Administration will release its figures on U.S. natural-gas supplies in storage Friday, a day later than usual because of Wednesday's national day of mourning following the passing of former President George H.W. Bush.

The American Petroleum Institute releases its weekly statistical bulletin at 4:30 p.m. Eastern Time late Tuesday as usual. However, weekly data from the EIA on U.S. petroleum supplies will be delayed by a day to Thursday at 11 a.m. Eastern.

Analysts polled by S&P Global Platts expect the EIA to show a fall in crude stocks of 2.39 million barrels for the week ended Nov. 30, following 10 consecutive weeks of reported increases.

CME Group CME, +0.05% 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 Mayra P. Saefong from MarketWatch.

12 04 2018 20:20 GMT

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