Recap: Oil futures experienced its largest one day move in five years, after OPEC agreed to cut output. This is the first time since 2008 OPEC agreed to cut output. The expiring January Brent contract rose by as much as 8.8%, while January WTI gained as much as 10.3% prior to the NYMEX settlement. Spot Brent futures settled at $50.47, up $4.09, or 8.2%, with January WTI gaining $4.29, or 9.31%, to settle at $49.44.
Wednesday's rise in prices does not come without skepticism due to OPEC's history of not adhering to previous plans to cut output, and the fact that higher prices will prompt U.S. producers to start pumping more oil, enhancing an already saturated market. Also, gains will be limited by the fact that shorts will most likely cover their positions.
As was the case on Tuesday, crude oil options were quite active, with the Jan17 $60 calls trading over 28,000 contracts and the $40 puts trading close to 25,000 contracts. The next active strike to these, was the Feb17 $50 call, which traded over 27,000 contracts.
December RBOB rose 11.4 cents, or 8.3%, to $1.491 a gallon. According to data from Dow Jones, spot RBOB futures gained 2.9%. December heating oil rose 10.8 cents, or 7.4%, to $1.571 a gallon. The December contracts expired at the settlement. Data from Dow Jones has spot heating oil futures up about 5% on the month.
Fundamental News: OPEC agreed to its first oil output cut since 2008. The agreement was in line with an agreement reached in Algiers in September. Kuwait's Oil Minister said OPEC agreed to cut production to 32.5 million bpd, with non-OPEC Russia joining in the output cuts for the first time in 15 years. Saudi Arabia will cut its oil output by 500,000 bpd to 10.06 million bpd under the new OPEC production limiting deal. The country's output stood at 10.54 million bpd in October. An OPEC source stated that the UAE, Kuwait and Qatar are expected to cut oil output by a combined total of about 300,000 bpd. Kuwait will cut its output by 130,000 bpd while Iraq agreed to cut its output by about 200,000 bpd to 4.351 million bpd starting in January. Libya and Nigeria are exempt from the cut. OPEC also agreed to allow Iran to set new production levels at 3.797 million bpd, slightly higher from its production level in October. The source also stated that OPEC had agreed to suspend Indonesia from OPEC and distribute the country's oil output share among some OPEC countries.
Saudi Arabia's Oil Minister, Khalid al-Falih, said it is a good day for the market. Meanwhile, Iran's Oil Minister, Bijan Zanganeh, said he was happy with the OPEC meeting and added that OPEC will likely meet with non-OPEC producers next week. Libya said OPEC will meet non-OPEC producers on December 9th.
A Russian Energy source said OPEC wants Russia to cut 400,000 bpd of oil production, which may be "a bit excessive." The source said Russia is only considering a 200,000 bpd cut. Separately, Russia's Energy Minister, Alexander Novak, said Russia is ready to gradually cut its oil production by up to 300,000 bpd in the first half of 2017. He gave no indication what level Russia is ready to cut its oil output from.
The EIA reported that US total oil demand increased in September for the second consecutive month by 2.3% or 446,000 bpd from a year ago to 19.86 million bpd. Demand growth was led by gasoline, which increased by 2.2% or 203,000 bpd from a year ago to 9.49 million bpd in September. Distillate demand fell by 3.2% or 131,000 bpd to 3.905 million bpd. The EIA also reported that US crude oil production fell by 167,000 bpd to 8.58 million bpd.
Kinder Morgan received approval from the Canadian government for the C$6.8 billion Trans Mountain expansion project.
Early Market Call - as of 9:00 AM EDT
WTI - Jan $51.01, up $1.57
RBOB - Jan $1.5285, up 4.6 cents
HO - Jan $1.6256, up 4.91 cents
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