Global oil prices extended gains Tuesday, taking U.S. crude to the highest levels in two weeks, amid increasing speculation that OPEC members will agree production cuts at their meeting in Vienna later this week despite concerns over co-operation from non-member Russia.
Reuters reported Tuesday that Russia is willing to cut its own production by 140,000 barrels per day, around half of what OPEC members would like to see if they are to collectively reduce output by 1.3 million barrels from January 1 in order to address what the cartel sees as a dangerous supply glut in global markets. If Russia won't increase its portion of the planned cuts when it meets with OPEC members on Friday, reports indicate, the bulk of reduction would need to be absorbed by Saudi Arabia, putting it directly at risk of confrontation with President Donald Trump at a time of when political relations between Riyadh and Washington are extremely sensitive following the murder of dissident journalist Jamal Khashoggi in late September.
"Expectations for a cut are building, particularly after comments from Russian President Vladimir Putin at the G-20 summit over the weekend," said ING's Warren Patterson. "The issue now is how much will the group cut. What does help OPEC+ is the fact that they are going into meetings knowing that Canadian output will be cut by (325,00 barrels per day) and so this is something that they will certainly factor into their cuts, and what it means for the global balance."
Brent crude contracts for January delivery, the global benchmark, were marked 2.2% higher Tuesday and changing hands at $63.05 per barrel while West Texas Intermediate crude contracts for the same month, which are more tightly linked to U.S gas prices, rose 2.2% to $54.12 per barrel, the highest in two weeks.
Crude bulls have also been supported by news that the producers in the Canadian province of Alberta, which ships the bulk of its oil to the United States, to trim output by around 325,000 barrels, nearly 9% of its daily total, starting next year in order to address a bottleneck that has tested storage capacity and troubled government officials concerned over "fiscal and economic insanity", according to Premier Rachel Notley.
However, some of today's market gains were held back by comments from Iraqi oil minister Jabar al-Luaibi, who said OPEC should look at solutions to lower oil prices that don't always involve production cuts, adding that any agreement the cartel reaches must avoid damage to its members. That followed news Monday that Qatar, a relatively small OPEC member that produces about 600,000 barrels of crude per day, will leave the cartel on January 1, suggesting its collective views are starting to waiver.
The American Petroleum Institute will publish data on U.S. crude stock piles later today, with analysts expecting the private-sector reading to show a decline of 2.25 million barrels in the week ending November 30. If confirmed by the Energy Information Administration Wednesday, the drawdown would mark the first reduction in U.S. crude stocks since mid-September.