Oil Rallies as OPEC Mulls Deeper Cuts

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange settled sharply higher on Thursday. That was with U.S. crude benchmark gaining more than 1.5% in market-on-close trade, boosted by positive signs of progress in U.S.-China trade talks and assurances from Organization of the Petroleum Exporting Countries that the group is willing to cut supply further to deliver a tight global oil market.

NYMEX November West Texas Intermediate futures ended the session $0.96 higher at $53.55 per barrel (bbl) and the ICE December Brent contract gained $0.78 to settle at $59.10 bbl. Both contracts settled at nearly 1-1/2 week highs Thursday after declining for three consecutive sessions. NYMEX November ULSD futures NYMEX November ULSD futures edged 0.15 cents higher to a $1.9208 gallon settlement and the November RBOB contract rallied 3.62 cents to $1.6233 gallon, a two-week high on spot continuous chart.

Thursday's session sent oil prices sharply higher, propelled by reports of progress in U.S.-China trade talks during the first day of a bilateral summit. U.S. President Donald Trump is now scheduled to meet the top Chinese envoy on Friday after both sides reportedly agreed on an accord to prevent currency manipulation.

Prior to the talks, the White House also approved licenses for American companies to do business with blacklisted Chinese telecom giant Huawei Technologies Co., a move seen as an effort to improve the environment for the talks.

Markets seemed upbeat by the positive tone in Thursday's negotiations, with Dow Jones Industrial gained than 150 points to 26,497 and S&P 500 ended 0.64% higher.

Oil complex was also boosted by comments from OPEC's Secretary General Mohammad Barkindo suggesting the cartel is ready to ensure tighter supplies on the global oil markets through deeper cuts. OPEC's official said the soon to be 13-member cartel will make "appropriate, strong, positive decisions," to sustain oil prices when they meet on Dec. 5 in Vienna.

"All options are open, including deeper production cuts," Barkindo added, and that he was inviting the United States to join the OPEC alliance with 10 non-OPEC countries led by Russia.

"The OPEC + charter fits the U.S. very well," he said. "It's for all producers today and U.S. is the biggest producer."

Separately, OPEC downgraded its 2019 oil demand growth estimates for the fourth time in five months, citing slowing global economic growth and U.S.-China trade tensions.

Citing preliminary data, OPEC said commercial oil inventory held by the Organization for Economic Cooperation and Development increased 10 million bbl in August to 2.937 billion bbl, 85 million bbl above year ago and 11 million bbl more than the five-year average. OECD commercial crude stocks were drawn down 21.9 million bbl in August to 28 million bbl below the five-year average while oil products increased 32 million bbl from July to 39 million bbl above the five-year average.

OPEC reported its crude production plunged 1.318 million barrels per day (bpd) in September to 28.491 million bpd, driven by steep declines in Saudi Arabian output, down to 8.564 million bpd or 17% below the allotted quota under OPEC+ accord. Venezuelan crude production slid 82,000 bpd to 644,000 bpd in September, with output by Iran falling 34,000 bpd to 2.159 million bpd. Both countries are under U.S. sanctions, limiting their ability to export oil.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)