Crude oil futures settled higher Thursday, with traders focused on a meeting in Vienna Saturday between OPEC and non-OPEC countries to discuss further cuts in oil production.
NYMEX January crude settled $1.07 higher at $50.84/b, while ICE February Brent rose 89 cents to settle at $53.89/b.
Meeting in Vienna on November 30, OPEC countries agreed to their first coordinated output cuts in eight years, with front-month NYMEX crude rallying $5.61 since (12.4%).
"The upstream crude oil market [is] finding some support ahead of weekend meetings in Vienna between OPEC and non-OPEC producers," Tim Evans, energy futures specialist at Citi, said. "Traders may be reluctant to sell crude oil ahead of the OPEC/non-OPEC conclave."
The OPEC agreement -- which would require OPEC producers to reduce output by 1.2 million b/d -- called for non-OPEC producers to cut their production by 600,000 b/d, with Russia already offering to shoulder 300,000 b/d of that beginning in March.
"The 600,000 b/d from non-OPEC [countries] is a must," Abdalla Salem El-Badri, former secretary general of OPEC, said at the Platts Global Energy Outlook Forum in New York Thursday.
Executives at the Forum expressed their optimism regarding the OPEC agreement, as well as Russia's commitment to participating.
"I don't have any doubt at all," Harold Hamm, CEO of Continental Resources, said about Russia's participation.
Even so, Evans doubted that other non-OPEC countries would be as quick to join the coordinated action, with Colombia and Brazil already ruling out cuts, for example.
"Further effective cooperation between oil producers seems unlikely in our view, as OPEC and Russia have already agreed on policy, reducing the leverage they have with other countries in our view," he said. "The rally in prices since the OPEC announcement may also persuade non-OPEC countries that cuts are unnecessary."
Regardless of the outcome of the OPEC/non-OPEC meeting this weekend, executives saw meaningful support for the oil complex in the already announced measures.
"There was a fear that Saudi Arabia would unleash its spare capacity at the last technical meeting in Vienna and there was a fear that Russia would increase its production by 200,000-300,000 b/d next year," Gary Ross, executive chairman of Pira Energy Group, an analytics unit of S&P Global Platts, said. "Both of those fears have been removed from the market, while on top of that you are cutting production and already in a flow deficit."
US commercial crude stocks fell 2.40 million barrels to 485.56 million barrels in the week ended December 2, according to data released Wednesday by the US Energy Information Administration. Inventories are still 34.51% above the five-year average but have fallen 5.1% from an all-time high of 512.10 million barrels in the week ended April 29.
One headwind that crude futures may run into in the coming weeks is a rising dollar, with the dollar index rising 0.85 to 101.08 around the time of the NYMEX settle.
"It's a question of how much higher can it can go. You've already seen a lot of appreciation, so if you hold at this level, it may be something the market can absorb," Saad Rahim, chief economist at Trafigura, said. "If you start to price in a more aggressive Fed next year and [devaluations in oil importing countries] accelerates, it could become more of a drag."
While crude oil futures continued to rise Thursday, refined product markets were more subdued following larger-than-expected inventory builds last week.
The EIA data showed US gasoline stocks rising 3.425 million barrels to 229.548 million barrels, while analysts surveyed by Platts were looking for gasoline stocks to build 900,000 barrels.
Distillate inventories built 2.501 million barrels to 156.697 million barrels, with analysts expecting a build of just 100,000 barrels.
NYMEX January RBOB dropping 35 points to settle at $1.5047/gal and ULSD up 75 points at $1.6259/gal.
