Oil futures edged higher on Friday after Saudi Arabia’s energy minister took a stern tone on compliance with OPEC+ production curbs and dared speculators to short crude, setting prices up for their largest weekly gain since June.
“So much for the OPEC+ JMMC being a ‘non-event’,” said Stephen Innes, global chief market strategist at AxiCorp. “A commitment to continued compliance/catch-up with quotas and pressure from Saudi concerning the need to comply appeared to strike a favorable chord with the market.”
The Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC+, held a Joint Ministerial Monitoring Committee meeting Thursday, extending the period during which countries that failed to limit production adequately in earlier months can make compensatory reductions.
OPEC+ in August relaxed earlier output curbs to 7.7 million barrels per day in August, from a record 9.7 million barrels.
“If these additional cuts are implemented, the feared production surplus on the oil market could be avoided and stocks reduced considerably,” said Eugen Weinberg, analyst at Commerzbank, in a note.
During the meeting, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman stressed the need for all countries to stick to their production ceilings. Abdulaziz also had a warning for traders betting on a fall in crude prices. “Make my day,” he said in a news conference, according to news reports.
West Texas Intermediate crude for October delivery
tacked on 37 cents, or 0.9%, to $41.34 a barrel on the New York Mercantile Exchange, while November Brent crude
the global benchmark, was up 12 cents, or 0.3% at $43.42 a barrel on ICE Futures Europe.
Crude is on track for big weekly gains, with WTI up more than 10%, which would mark the largest weekly rise for a front-month contract since the week ended June 5, according to FactSet data. Brent is up by nearly 9%, which would be the strongest such rise since the week ended June 19.
Analysts noted that current oil-price levels are putting a strain on public finances for a number of major producers.
“If prices move markedly lower, we think the sovereign producers would step in to safeguard their domestic finances. Current prices remain well below the fiscal break-even levels of the vast majority of OPEC+ producers and another extended stay in the $30s/barrel could imperil the political stability of several key petrostates,” said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note.
She expects OPEC+, at a minimum, to put a hold on plans to reduce the cut to 5.8 million barrels a day, which would effectively put an additional 2 million barrels a day on the market, when the entire group meets again in December.
“It will be worth watching whether the additional Saudi export volumes (which will be coming as domestic demand eases) put too much strain on the market and trigger an early adjustment, especially if the compliance challenged countries fail to make headway on compensatory cuts,” she said.
In a note dated Thursday, analysts at Goldman Sachs said oil prices are rebounding, after having erased all of their summer gains in the first week of September, in part due to a slowdown in Chinese imports.
Still, “the announcement by Chinese policymakers last week that they would aim to replenish commodity inventories in 2021 is a new bullish catalyst,” they said, reiterating their year-end Brent forecast of $49.
Back on Nymex, petroleum products saw mixed trading, with October gasoline down 0.5% at $1.2185 a gallon and October heating oil up 0.2% at $1.1622 a gallon. Gasoline futures were looking at a weekly rise of over 11%, but heating oil was up by a more modest 6.6%.
Natural-gas futures, meanwhile, looked to extend their steep loss from a day earlier when U.S. government data revealed a larger than expected weekly rise in domestic supplies of the fuel.
October natural gas
was down 0.8% at $2.025 per million British thermal units. For the week, prices were down nearly 11%.
On Thursday, the National Oceanic and Atmospheric Administration released an update to their three-month temperature outlook, “which now predicts above-normal temperatures for the months of October, November, and December,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note.
“Although it’s still too early to get a very accurate idea of winter weather patterns, it is the first indication of a possible mild winter, which would be bearish for natural gas prices,” she said.