14 November 2018, News Wires — Oil rose about 2 percent on Wednesday, recouping some of the previous session’s heavy selloff, on the growing prospect of OPEC and allied producers cutting output at a meeting next month to prop up the market.
Prices recovered, with Brent inching back above $67 after Reuters reported that OPEC and its partners are discussing a proposal to cut output by up to 1.4 million barrels per day (bpd), a larger figure than officials had mentioned previously.
Brent crude futures rose $1.36 to $66.83 a barrel, a 2.1 percent gain by 11:35 a.m. EST (1635 GMT). WTI crude futures for December delivery rose $1.14 to $56.83 a barrel, a 2.1 percent gain.
The price of Brent has fallen by more than 20 percent since early October on concern about excess supply and slowing demand, one of the biggest declines since a price collapse in 2014. U.S. crude had declined for a record 12 consecutive sessions to the lowest since November 2017.
“The market has cratered over the last few weeks and the pop today is related to the chatter that producers could cut up to 1.4 million bpd in 2019,” said Gene McGillian, vice president of market research for Tradition Energy in Stamford, Connecticut.
“Maybe some of the fears of extra supplies and reduced demand have finally been priced into the market, but I wouldn’t say that a bottom has set in yet.”
The selling leading up to Wednesday was further exacerbated as traders unwound long oil – short natural gas trade, market participants said. As oil crashed from the high touched in October, natural gas futures soared as much as 56 percent during that time to a 4-1/2 year high.
Moreover, financial firms hedging the risk incurred by selling put options to oil producers, generating added downward pressure when prices fall toward option strikes, Goldman Sachs said in a note.
Oil markets are being pressured from two sides: a surge in supply from OPEC, Russia, the Unites States and other producers; and increasing concerns about a global economic slowdown.
“This market is attempting to find a price bottom following an unprecedented 12 consecutive days of decline,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
“Although the supply surplus is still relatively modest, the market is focusing on the dynamic of expansion in the overhang that will need to show signs of reversal before a price bottom can be established.”
In its monthly report, the Paris-based International Energy Agency (IEA) said the implied stock build for the first half of 2019 is 2 million bpd.
The IEA left its forecast for global demand growth for 2018 and 2019 unchanged from last month at 1.3 million barrels per day (bpd) and 1.4 million bpd, respectively, but cut its forecast for non-OECD demand growth, the engine of expansion in world oil consumption.
U.S. crude oil output from its seven major shale basins is expected to hit a record 7.94 million barrels per day (bpd) in December, the U.S. Department of Energy’s Energy Information Administration (EIA) said on Tuesday.
That surge in onshore output has helped overall U.S. crude production hit a record 11.6 million bpd, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.
Most analysts expect U.S. output to climb above 12 million bpd in the first half of 2019.
The rise in U.S. production is contributing to higher stockpiles. Official storage data is due on Thursday from the EIA, with analysts expecting a 3 million barrel rise in crude inventories.