U.S. crude benchmark WTI trades above $48.50
Crude oil prices are up today, as the markets remain hopeful that OPEC will come to an agreement and limit its production during its next official meeting in November.
Brent, the global benchmark, gained 1.4% to $50.89 per barrel, its largest daily gains since September 8, and its highest settlement since August 18. The U.S. benchmark WTI was up 1.2% at $48.81 per barrel, its fourth-consecutive rise, and highest settlement since July 1.
The increase in prices came as Iran’s President Hassan Rouhani told his Venezuelan counterpart Nicolas Maduro over the phone that it was essential for oil producing countries to take a decision to raise the price of oil and stabilize the market, reports Reuters.
The last time OPEC and non-OPEC producers came together to form a deal that would support prices, Iran refused to join a production freeze, effectively tanking the deal.
“It’s kind of a light volume day and we’re moving from headline to headline, but still Iran telling Venezuela that all countries are going to have to join this production cut is gaining traction because there are many who want to believe this deal will get done,” said Phil Flynn, analyst at the Price Futures Group brokerage.
“There’s already a soft commitment from Russia that it will be part of the OPEC plan and if more non-OPEC members get on board, prices can only go higher.”
Skeptics
Some in the market remain skeptical of the deal, however, with Reuters indicating that OPEC’s production continues to rise, even as the group discusses a production cut. It is possible that the 32.5-33.0 MMBOPD cap that OPEC plans to introduce would simply reflect lower seasonal production, but Flynn says this is still positive news.
“While many still express skepticism that this agreement will reduce supply, they are missing the point,” he said. “For the first time in almost 8 years the cartel has agreed to limit production. … we will see the cartel once again have the ability to manipulate prices by withholding supply.”
There is downside risk for the OPEC deal, however. If the group excites the markets with talk of a deal, and then fails to finalize one in November, markets could react negatively.
“OPEC has created its own Q4 risk to oil prices … In raising expectations of a November deal to cut production, it also risks a steep price decline should it fail to achieve its goal of cutting output back to less than 33 million bpd,” Barclays said in a note to clients.
Despite that, the bank said it did not expect a repeat of the price crash seen late last year after a rally earlier in 2015, citing an improving Asian economic growth outlook, falling oil supplies and rising investor interest in oil markets as support factors.
Bloomberg reported a lot of hedging in the markets: “Independent oil companies are using the post-OPEC rally to hedge their price risk for next year, banks and consultants said, a trend that’s likely to be viewed with concern from Saudi Arabia to Venezuela.
“We are seeing significant producer flows which early estimates suggest could be the highest we have seen all year,” Adam Longson, commodity strategist at Morgan Stanley in New York said in a note to clients.”
