CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent futures on the Intercontinental Exchange are down sharply in early trading and posting significant losses for November ahead of the contract expirations for Brent and oil products while leaders of the Group of 20 international forum gather in Buenos Aires, Argentina, where the stakes are high for oil producers and for world economic growth.
The G-20 meeting could be contentious, with U.S. President Donald Trump to meet with Chinese President Xi Jinping and Russian President Vladimir Putin to meet with Saudi Arabian Crown Prince Mohammed bin Salman. Trump canceled a meeting with Putin following Sunday's (11/25) Russian naval attack against Ukraine, with Russia currently holding 20 Ukrainian sailors captive and have seized three Ukrainian vessels.
MBS, as the Saudi heir apparent is known by, could face a challenging discussion with Putin over production cuts even as the Russian leader this week said he recognized the need for reducing oil output in 2019 when the Saudis project supply will outpace demand by 1.0 million barrels per day (bpd) without action.
Saudi Oil Minister Khalid al-Falih this week sought a united front by producers in reining in output, indicating the kingdom wouldn't do it alone. The Saudis are proposing extending the 2016 Vienna agreement that's set to expire at year's end into 2019, with crude production by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers led by Russia well above the quotas outlined in the accord. Such an agreement, if it can be reached when OPEC meets Dec. 6, would require the Saudis to cut their output 1.0 million bpd from an early November record high 11.0 million bpd.
The Saudis are in a difficult position in rallying OPEC to agree to meaningful production cuts next week, losing influence following the murder of a prominent journalist and critic of the Saudi crown prince by a Saudi hit squad at its consulate in Turkey on Oct. 2. Russia is clearly preying on that weakness, likely to force the Saudis to make the lion's share of the production cuts. Russian crude production reached a post-Soviet high of 11.41 million bpd in October.
Trump and Xi will dine Saturday evening when they will discuss U.S. demands that China adjust its trade policy. Trump had previously said he would not hesitate in slapping additional tariffs on Chinese imports in January if a trade deal wasn't reached that would escalate the dispute and potentially begin a long cold war between the world's top two economies. Reports surfaced on Thursday of a workaround that would delay new tariffs in exchange for broader consideration of changes in Chinese policy.
The meeting comes amid a slowing Chinese economy. Overnight, the China Federation of Logistics and Purchasing Manufacturing Purchasing Managers Index was released showing a decline from 50.2 in October to 50.0 in November, a 28-month low, and at the demarcation line between growth and contraction. The export index was 47.0 in November, the sixth consecutive month in contraction. The CFLP non-manufacturing index fell 0.5 to 53.4 in November, a 15-month low.
Nymex January West Texas Intermediate futures were again below $50 barrel (bbl), down more than $1.50 near $49.90 bbl while the spot month contract has lost 31.9% of its value in November. ICE January Brent crude futures are down more than $1.00 at $58.35 bbl ahead of its expiration this afternoon, with the spot contract tumbling 29.5% in value this month. February Brent futures are trading near parity with the expiring contract.
Nymex December ULSD futures traded down 5.36 cents at a $1.7900 gallon 13-month low on the spot continuation chart ahead of expiration Friday afternoon, with the spot-month contract losing more than 55.0 cents or 23.9% in November. January ULSD futures are trading near parity with December delivery.
Nymex December RBOB futures were 4.27 cents lower at $1.4120 gallon and at a more than 2.0 cents premium to January delivery ahead of expiration Friday afternoon, while the spot contract has erased 68 cents or 32.3% of value this month.
Brian L. Milne can be reached at firstname.lastname@example.org
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