Oil prices surge, smash trading volume records as OPEC and Russia agree output cut - Sean Seshadri

Oil prices shot up 13 percent, smashing trading volume records, after OPEC and Russia cut a deal to reduce output to drain a global supply glut, but analysts warned they could remain modest by historical comparison as other producers fill the gap.

The Organization of the Petroleum Exporting Countries (OPEC)agreed on Wednesday its first oil output reduction since 2008 after de-facto leader Saudi Arabia accepted "a big hit" and dropped a demand that arch-rival Iran also slash output. The deal also included the group's first coordinated action with non-OPEC member Russia in 15 years.

"OPEC has agreed to an historic production cut," analysts at AB Bernstein said. "The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (0.7-1.2 million bpd). An additional cut of 0.6 million bpd from non-OPEC countries could significantly add to what has been announced by OPEC."

Following the announcements, the price for Brent crude futures (LCOc1), the international benchmark for oil prices, jumped 13 percent from below $50 on Wednesday to $52.54 per barrel at 0600 GMT.

U.S. West Texas Intermediate (WTI) crude futures also rose back above $50, trading at $50.11 a barrel at 0600 GMT.

"OPEC has delivered an agreement," said Jason Gammel of U.S. investment bank Jefferies. "Bulls got as much as could be hoped for...For the time being, oil prices have received a huge support."

The development also triggered frenzied trading, with Brent futures trading volumes for February and March, when the supply cut will start to be visible in the market, hitting record volumes.

The second front-month Brent crude futures contract, currently February 2017, traded a record 783,000 lots of 1,000 barrels each on Wednesday, worth around $39 billion and easily beating a previous record of just over 600,000 reached in September. That's more than eight times actual daily global crude oil consumption.

March Brent traded 288,64000 lots of 1,000 barrels each, compared with a previous record of 228,7000 lots done in July 2014.

The records also meant that Brent volumes far exceeded trades in U.S. West Texas Intermediate (WTI) crude futures, which tend to be higher than those for Brent, but which registered only 368,000 and 214,800 lots for February and March, respectively.

DOUBTS REMAIN

Despite the agreed deal, some doubts over the cut remained. "This is an agreement to cap production levels, not export levels," British bank Barclays (LON:BARC) said. "The outcome is consistent with... what OPEC production levels were expected to be in 2017 irrespective of the deal reached."

Meanwhile U.S. bank Morgan Stanley (NYSE:MS) said that "skepticism remains on individual countries' follow-through (on the cut), which is keeping prices below year-to-date highs (of $53.73 per barrel in October) for now."

Despite the jump in prices, they are still only at September-October levels - when plans for a cut were first announced - and prices are at less than half their mid-2014 levels, when the global glut started.

Goldman Sachs (NYSE:GS) said in a note following the agreement that it expected oil prices to average just $55 per barrel in the first half of next year.

OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels, when prices fell to over 10-year lows amid ballooning oversupply.

Analysts said that the cuts would leave the field open for other producers, especially U.S. shale drillers.

"We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.," Goldman Sachs said.

U.S. crude production has risen by over 3 percent this year to 8.7 million bpd, as its drillers have aggressively slashed costs.

Oil prices rise in nervous trading ahead of OPEC meeting - Sean Seshadi

Oil markets edged up in nervous trading on Wednesday ahead of an OPEC meeting later in the day, with members of the producer cartel trying to thrash out an output cut to curb oversupply that has seen prices more than halve since 2014.

International Brent crude (LCOc1) was trading at $46.85 per barrel at 0603 GMT, up 47 cents, or 1 percent, from its last close.

U.S. West Texas Intermediate (WTI) crude was up 29 cents, or 0.6 percent, at $45.52 a barrel.

Traders said markets were jittery, and that prices could sharply swing either way depending on developments at the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna.

Oil dropped nearly 4 percent the previous session over disputes between Saudi Arabia, Iran and Iraq regarding details of the planned cut.

Despite the disagreements, most analysts still expect some form of deal.

"We expect OPEC will reach an agreement ... We believe OPEC's resolve in reaching an agreement remains strong," ANZ bank said.

Analysts at Goldman Sachs (NYSE:GS), Barclays (LON:BARC), and ANZ agree that oil prices would quickly rise above $50 per barrel should OPEC come to an agreement. Without a deal, the consensus is for a fall to the low $40s.

Iran and Iraq are resisting pressure from Saudi Arabia to curtail production, making it hard for the group to reach a deal.

Iranian Oil Minister Bijan Zanganeh told reporters upon arrival at OPEC's headquarters in Vienna that his country was not prepared to reduce output: "We will leave the level of production (where) we decided in Algeria."

OPEC, which accounts for a third of global oil production, made a preliminary agreement in Algiers in September to cap output around 32.5-33 million bpd versus the current 33.64 million bpd to prop up prices.

OPEC said it would exempt Iran, Libya and Nigeria from cuts as their output had been crimped by unrest and sanctions.

One of the biggest OPEC concerns is that by cutting output it would simply hand over market share to non-OPEC competition.

There are strong indicators that such concerns are warranted: U.S. shale drillers have radically slashed production costs in the last few years, to now between $35 and $40 per barrel.

A potential compromise would be for OPEC to return to some form of production quota, instead of ordering outright cuts.

Although that would do nothing to end a glut in which more crude is produced than consumed, it would potentially help balance the market in the long-term as rising demand would gradually bring consumption to output levels.

Oil prices dip on scepticism ahead of OPEC meeting - Sean Seshadri

Oil prices dipped on Tuesday on doubts that producer cartel OPEC will be able to hammer out a meaningful output cut during a meeting on Wednesday aimed at reining in a global supply overhang and propping up prices.

International Brent crude oil futures (LCOc1) were trading at $47.99 per barrel at 0305 GMT, down 25 cents, or 0.5 percent, from their last close.

U.S. West Texas Intermediate crude futures (CLc1) were down 23 cents, or 0.5 percent, at $46.85 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) is meeting officially in Vienna on Wednesday to discuss a planned production cut in an effort to curb overproduction that has dogged markets and more than halved prices since 2014.

With a high degree of uncertainty going into the last 24 hours before the meeting, oil price volatility is expected to be high.

"I still think they need to do a deal even though my confidence has dropped back to coin toss levels," said Greg McKenna, chief market strategist at Australian brokerage AxiTrader.

Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore said he expected "intra-day volatility to ratchet higher again into tomorrow, with price action being entirely headline driven."

There remains disagreement among OPEC-members over which producers should cut by how much, and a plan for non-OPEC oil giant Russia to participate has so far also failed.

Beyond OPEC's production policy, oil demand remains firm.

South Korea's crude imports rose 3.9 percent in the third quarter of 2016 from a year earlier, as oil consumption climbed thanks to low oil prices.

The world's fifth-largest crude importer shipped in 270.4 million barrels of crude oil in the July-September period, or 2.94 million barrels per day (bpd), compared with 260.3 million barrels in the same period in 2015, its energy ministry said on Tuesday in a statement.

Oil prices gyrate as OPEC heavyweights head to Vienna - Sean Seshadri

Oil prices edged higher on Monday, after falling as much as 2 percent in early trading, as the market grappled over the shaky prospect of major producers being able to agree output cuts at a meeting on Wednesday aimed at reining in global oversupply.

Brent crude futures (LCOc1) fell as far as 2 percent before clawing back to trade 29 cents at $47.44 per barrel at 1008 GMT (5:08 ET).

U.S. West Texas Intermediate (WTI) crude futures (CLc1) also recouped early losses and was trading up 15 cents at $46.21 per barrel.

The choppy trading came after prices tumbled more than 3 percent on Friday as doubts grew over whether the Organization of the Petroleum Exporting Countries (OPEC) would reach agreement to help curb global supply overhang that has more than halved prices since 2014.

On Sunday, Saudi Arabian Energy Minister Khalid al-Falih said that he believed the oil market would balance itself in 2017 even if producers did not intervene, and that keeping output at current levels could therefore be justified.

The statement added to simmering disagreement between OPEC and non-OPEC crude exporters such as Russia over who should cut production by how much.

Analysts said that even if some form of an output restriction is announced after producers meet in Vienna on Wednesday, the details matter greatly.

"Do not take an announcement of a headline cut of 1 million barrels per day (bpd) at face value. It could still imply an OPEC production level considerably in excess of 33 million bpd, depending on developments in Libya and Nigeria and the speed and rigor of compliance," David Hufton, managing director of brokerage PVM Oil Associates Ltd. said in a note.

He added that the stakes of failure are high for producer nations dependent on oil export revenue.

"But one thing few, if any, analysts will disagree with is that if OPEC do not come up with a credible agreement to cut production on Wednesday oil prices will end the year below $40 bbl and be chasing down $30 bbl early next year," Hufton said.

A meeting scheduled for Monday between OPEC and non-OPEC producers was called off after Saudi Arabia declined to attend, while concerns over the feasibility of a deal pushed the crude oil volatility index (OVX) close to a nine-month high.

Even if a cut is agreed, oversupply may not end soon.

The U.S. oil rig count rose by three last week, and Goldman Sachs (NYSE:GS) said that "since its trough on May 27, 2016, producers have added 158 oil rigs (+50 percent) in the U.S.".

Oil prices hit highest since October in anticipation of OPEC-led output cut - Sean Seshadri

Oil prices rose to their highest level since October on Tuesday as the market priced in an expected output cut led by producer cartel OPEC, but analysts warned that a failure to agree on a cut could lead to a deepening supply glut by early 2017.

International Brent crude oil futures rose as high as $49.63 a barrel on Tuesday, up 1.5 percent from the last settlement and the highest since Oct. 31, before dipping back to $49.22 per barrel at 0735 GMT, still up 32 cents, or 0.65 percent.

U.S. West Texas Intermediate (WTI) crude futures were up 35 cents, or 0.73 percent, at $48.59 a barrel.

The Organization of the Petroleum Exporting Countries (OPEC) is trying by Nov. 30 to bring its 14 member states and non-OPEC producer Russia to agree on a coordinated production cut to prop up the market by bringing production into line with consumption.

"With investors becoming more optimistic about OPEC reaching an agreement on production cuts, oil prices should continue to edge higher," ANZ bank said on Tuesday.

"The single most important country in OPEC, Saudi Arabia, wants it (a production cut)... OPEC's leadership is cognizant of the risks posed by failing to reach a deal," RBC Capital Markets said on Tuesday in a note to clients.

"Another fall in oil prices could plunge the (Saudi) Kingdom further into the red, imperil key initiatives (e.g., Aramco IPO), and raise the prospect of higher borrowing costs," it added.

Goldman Sachs (NYSE:GS) said in a note to clients that the chances of an OPEC cut had increased as producers needed to react to eroding supply and demand fundamentals, which the bank said "have weakened sharply since OPEC announced a tentative agreement to cut production."

Should OPEC and other producers, especially Russia, fail to agree a cutback, Goldman said it expected an oil supply surplus of 0.7 million barrels per day (bpd) for the first quarter of 2017.

Oil touches three-week highs ahead of OPEC meeting - Sean Seshadri in florida

Oil prices rose on Monday to their highest in three weeks, catching a lift from a softer U.S. dollar and from cautious money managers, as OPEC appeared to be moving closer to reaching an agreement to cut output when it meets next week.

Brent crude futures (LCOc1) were up 60 cents at $47.46 a barrel by 0928 GMT, having touched their highest level since Nov. 2, while U.S. West Texas Intermediate (WTI) futures (CLc1) were up 52 cents at $46.21 a barrel.

The dollar eased off last week's 13-1/2-year highs as Treasury yields nudged lower, bolstering oil and the broader commodities complex including copper and gold .

"Oil is already more than 1 percent higher on the day, helped by Vladimir Putin’s belief that an output deal will be reached later this month," OANDA markets strategist Craig Erlam said.

"While loose terms may be agreed, I remain skeptical that a full detailed agreement can be both achieved and carried out by OPEC given the clear differences that are so evident between certain key members."

President Putin said he saw no obstacle to non-OPEC member Russia agreeing to freeze oil output, which at more than 11 million barrels per day is at a post-Soviet high.

Meanwhile, OPEC members last week proposed a deal for Iran to cap, rather than cut, output.

Iran has been one of the main hurdles facing any output curtailment by the Organization of the Petroleum Exporting Countries, as Tehran wants exemptions to try to recapture market share lost under years of Western sanctions.

Libya and Nigeria, whose exports have been hampered by violence, have also asked to be left out of any deal. A recovery in production from both countries means the onus to cut rests on Saudi Arabia and its Gulf neighbors.

Barclays analysts said some form of deal was likely, but warned an agreement could have little impact.

"We expect OPEC to agree to a face-saving statement ... (but) U.S. tight oil producers can grow production at $50-$55 (per barrel) and will capitalize on any opportunity afforded to them by an OPEC cut," the bank said.

Hedge funds raised their net holdings of U.S. crude futures and options for the first time in three weeks in the week to Nov. 15, having delivered one of the largest cuts on record the previous week. The move highlights the nervousness among investors about betting heavily on oil in either direction.

Oil prices fall on U.S. crude stock build, OPEC remains in focus - Sean Seshadri

Crude oil futures dropped on Thursday after official inventory reports indicated a larger-than-expected build in U.S. oil stocks.

Crude inventories in the United States rose by 5.3 million barrels in the week to Nov. 11, compared with expectations for an increase of 1.5 million barrels.

The climb in inventories was mainly due to higher imports that averaged 910,000 barrels per day (bpd), according to data released by the U.S. Energy Information Administration on Wednesday.

U.S. benchmark WTI crude (CLc1) was down 10 cents, or 0.22 percent, at $45.47 a barrel at 0555 GMT. European ICE Brent (LCOc1) crude futures fell 11 cents, or 0.24 percent, to $46.52 per barrel.

"Crude oil struggled to keep its head above water after the weekly EIA showed another large rise in inventories ... Stocks of crude oil jumped 5.27 million barrels, much more than expected," Australian bank ANZ said in a note.

Refining margins in all five U.S. regional petroleum districts fell in the week ended Nov. 11, Credit Suisse (SIX:CSGN) said in a weekly report on Wednesday.

"The U.S. EIA produced a higher-than-expected crude inventory figure, but this was subsumed into OPEC gossip," said OANDA senior market analyst Jeffrey Halley. "We are well into headline trading season as Nov. 30 approaches."

OPEC countries are ready to reach a "forceful" agreement on cutting oil output, Venezuelan President Nicolas Maduro said on Wednesday, following a meeting with OPEC Secretary-General Mohammed Barkindo in Caracas. OPEC members are due to meet on Nov. 30.

Russia has also expressed willingness to support an OPEC decision to freeze oil output, Russian Energy Minister Alexander Novak said on Wednesday, adding that he may meet Saudi Arabia's Energy Minister Khalid al-Falih at a gas conference in Doha this week.

Despite renewed optimism that an OPEC output freeze is on track, rising oil production data and changing fundamentals "makes a credible OPEC cut all the more difficult to achieve", American investment bank Jefferies said in a note on Thursday.

"The physical market has shifted back to oversupply because of surging OPEC output, with the most material increases driven by improving security conditions in Libya and (tenuously) Nigeria," the U.S. bank said adding that it maintains its 2017 Brent forecast at $58 a barrel.