Crude oil futures were higher during mid-morning trade in Asia Tuesday, continuing the uptrend seen Monday, as OPEC officials reassured the market they were committed to reaching a new output deal this week despite Qatar’s surprise withdrawal from the group.
At 10:30 am Singapore time (0230 GMT), ICE February Brent crude futures were up 54 cents/b (0.88%) from Monday’s settle at $62.23/b, while the NYMEX January light sweet crude contract was 56 cents/b (1.06%) higher at $53.51/b. Qatari energy minister Saad Al-Kaabi Monday announced the gas-rich sheikhdom will exit OPEC on January 1 after 57 years of membership to concentrate on building its position as the world’s top LNG supplier.
While there was an initial price reaction to the announcement, OPEC officials later reassured the market that a new output deal would be agreed among member countries at their meeting later this week at Vienna. “This won’t complicate anything we are doing,” UAE energy minister and OPEC President Suhail al-Mazrouei told S&P Global Platts Monday, referring to Qatar’s decision.
Qatar is locked in a bitter diplomatic feud with OPEC kingpins Saudi Arabia and the UAE, which have enforced an economic boycott of the peninsula. “Qatar’s decision to leave the cartel was a surprise to the market; the impact is likely to be more political rather than price, given that the production share is not significant (2% of OPEC’s total oil production),” ANZ analysts in a note.
“It remains to be seen whether Qatar will sign up to the production cuts even as a non-OPEC member,” Commerzbank analysts said in a note. OPEC meets Thursday to debate the need for output cuts, which Saudi Arabia, the UAE and other members say are necessary to prevent an oversupply in the first half of 2019. Russia and nine other key non-OPEC partners will join the talks Friday. Oil prices have plunged 30% since peaking at $86/b on October 3 and investors are looking to OPEC to cut output for prices to retrace losses, analysts said.
“For prices to recover, we believe the decline in OPEC production needs to be large enough to reverse the counter-seasonally large inventory builds that are currently taking place,” Goldman Sachs analysts said in a note. Bullish expectations over US crude inventory data due for release in coming days also provided support Tuesday. Analysts surveyed Monday by Platts were looking for US crude stocks to have declined by 2.39 million barrels to around 448.1 million barrels in the week ended November 30.
The anticipated draw comes amid an expected 1.2 percentage point uptick in US refinery runs, according to analysts surveyed. This would bring nationwide refinery utilization up to 96.8% of capacity. If confirmed by the US Energy Information Administration, a fall would snap 10 consecutive weeks of inventory gains. As of 0230 GMT, the US Dollar Index was down 0.11% at 96.787. Platts.com
