Oil rose as OPEC and its allies were said to plan discussions about fresh production cuts next year, responding to recent increases in oil inventories amid surging U.S. supply.
Futures in New York gained 1 percent. Ministers from the Organization of Petroleum Exporting Countries gathering in Abu Dhabi this weekend will discuss options for 2019 including the scenario of fresh supply cuts, said delegates.
That would mark an abrupt end to six months of supply increases, reflecting the prospect that U.S. sanctions on Iran won’t be deep enough to prevent another surge of American shale oil creating a new surplus.
Supply concerns that drove crude to a four-year high last month faded on speculation the U.S. would soften the blow of its sanctions on Iran to lower pump prices at home. OPEC also pledged to offset any supply gaps. The group led by Saudi Arabia will gather in Abu Dhabi this weekend as they face a fresh surge of U.S. shale oil threatening to unleash a new surplus in 2019.
The market has “more bearish overtones in terms of supply, with American crude output seen rising this year by the most ever,” said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda Corp.
West Texas Intermediate crude for December delivery advanced 60 cents to $62.81 a barrel on the New York Mercantile Exchange at 6:05 a.m local time. Total volume traded was 77 percent above the 100-day average.
Biggest Yearly Gain
Brent futures for January settlement added 99 cents to $73.12 on the London-based ICE Futures Europe exchange. The contract fell 1.4 percent to close at $72.13 on Tuesday. The global benchmark crude traded at a $10.13 premium to WTI for the same month.
If OPEC, led by Saudi Arabia, does ultimately decide fresh cutbacks are necessary, it will confront a number of challenges. It will need to once again secure the support of rival-turned-partner Russia, which has less need for high oil prices. There’s also the risk of antagonizing the kingdom’s key geopolitical ally, U.S. President Donald Trump.
The group is responding to signs of more plentiful supply, such as Brent’s retreat of about 17 percent from a four-year high reached in early October. The U.S. government forecast the nation’s oil output will increase at a record pace this year, while industry data signaled American crude inventories rose last week. Meanwhile, the waivers will allow Iran to continue some exports to its top customers for another six months.
Industry data was said to show that nationwide U.S. oil inventories rose by 7.83 million barrels last week, while a median estimate in a Bloomberg survey of analysts expected a 2-million-barrel increase ahead of government data Wednesday.
© 2018 Bloomberg L.P