Oil at 3-week High Ahead of OPEC Announcement

Goldman Sachs analysts said that chances of an OPEC cut succeeding have increased.

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Oil rose over 4 percent to a three-week high on Monday, supported by signaled optimism that the Organization of the Petroleum Exporting Countries would agree to curb oil production at a meeting next week.

Brent crude oil briefly touched $49 a barrel while the London benchmark has risen 11 percent in a week since Saudi Arabia, the de facto leader of the OPEC, started persuading the group’s more reluctant members to join its proposed output plan.

Last September, OPEC proposed limiting the output to a collective 32.5 million to 33 million barrels a day, which would be its first cut in eight years.

At the time, Goldman Sachs analysts said conditions were not optimal for a cut to work. However, in a recent research note they said that chances of an OPEC cut succeeding have increased.

“With greater confidence that the global oil market can finally shift into deficit later next year, we now believe that there is a strong rationale for low-cost producers to deliver a swift production cut to normalize inventories,” they said.

In recent days, several members of the 14-nations’ group including Iran and Iraq, along with non-member Russia, have suggested they were leaning toward reaching a deal to limit output at the meeting in Vienna on Nov 30.

Brent crude futures LCOc1 rose $2.04 to $48.91 a barrel by 1:29 p.m. ET (1829 GMT). U.S. West Texas Intermediate (WTI) CLc1 strengthened by $1.83 to $47.52 a barrel, after climbing as high as $47.80.

Final agreement to curb oil production anticipated next week

Senior market analyst at Price Futures Group in Chicago, Phil Flynn said: “When you’ve got all of the major players on board with a production cut, obviously you’re very close to getting a deal done.”

Russian President Vladimir Putin told reporters on Sunday that there is a “strong likelihood” that an agreement will be reached at the 171st OPEC meeting next week.

He also said that Russia is willing to freeze output at current levels, which at more than 11 billion barrels per day is at post-Soviet high.

Iran’s oil minister Bijan Zangeneh also told reporters on Saturday that OPEC is “highly likely” to reach a final agreement to curb oil production later this month.

Iran, Iraq Optimistic

Last week, OPEC members proposed a deal for Iran, that has been pushing for exemptions to try to recapture market share lost under years of Western sanctions, to cap, rather than cut, output.

Even Iraq, the most reluctant member, seemed “optimistic” about reaching a deal as Iraq’s oil minister Jabbar al-Luaibi told the Wall Street Journal on Friday.

Libya and Nigeria have asked to be left out of any deal as violence has set back their exports. Nigeria’s oil production fell to 1.63 million bpd in the third quarter from 1.69 million in the second quarter.

Energy stocks surging

Anticipation for the OPEC agreement also has energy stocks up. On Monday, energy giant Exxon Mobil (NYSE:XOM) was up by 1.32 percent and closed at $86.41, while petroleum refiner Marathon Petroleum (NYSE:MPC) was up 8.91 percent to close at $47.17 per share.

Keith Schaefer, in his Oil and Gas Investments Bulletin says he expects US oil stocks to fare well in the coming months, and that “OPEC is basically standing aside and opening the door for Permian oil producers to increase production by 1 million barrels a day—and they will be rushing in to fill that gap.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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